Dividends and Musk, Trump and the perils of disruption

In an article in mid July, Ian McGugan wrote about disruption. The poster boys for disruption are Elon Musk and Donald Trump.

Disruption growing appeal is on display in corporate reports. Top executives routinely claim they are planning to disrupt their industries, while fighting off the potential for disruption for new rivals and eyeing the disruptive potential of the latest technology. Media organizations publish lists of the most disruptive companies – venture capitalists are excited.

Mr. McGugan writes about Elon Musk and President Donald Trump.

The overarching lesson is that genuine disruption is hard, risky unpredictable work. Sometimes there are great successes, most of the time there is not.

Investors should be skeptical. Evidence suggests the biggest winners are not self styled disrupters, but simply businesses that simply find smart ways to thrive within an existing sector.

If you bought the same amount of shares of Google’s parent Alphabet or Domino’s Pizza which shares would have given the highest total return? It turns on to be Domino’s.

The idea you can pick out great disrupters early on seems particularly far-fetched. A classic 2001 Study by Louis Chan, Jason Karceski and Josef Lakonishok found there is no persistence in a stock’s long term earnings growth beyond what you expect from chance. Today’s high flier maybe a dud in the near future.

Linking to dividend paying stocks, there is glamor and excitement about stocks that cause disruption, but there are steady earnings and profits for a duller company and in the long run which one do you want to hold most of your investments in. Ensure you have some money in the glamor or hot industry, but be willing to know when to sell if you do. Many individuals and institutions have seen companies go up and come down faster. Institutions remain because by law they have to be reasonably diversified. Individuals the opportunity to rebuilt takes longer. If you invest in profitable stocks that pay a dividend, life will be easier for you.

There are more questions than answers, till the next time – to raising questions.


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