News | Features
12 Aug 2022 5:17
NZCity News
NZCity CalculatorReturn to NZCity

  • Start Page
  • Personalise
  • Sport
  • Weather
  • Finance
  • Shopping
  • Jobs
  • Horoscopes
  • Lotto Results
  • Photo Gallery
  • Site Gallery
  • TVNow
  • Dating
  • SearchNZ
  • NZSearch
  • Crime.co.nz
  • RugbyLeague
  • Make Home
  • About NZCity
  • Contact NZCity
  • Your Privacy
  • Advertising
  • Login
  • Join for Free

  •   Home > News > Business > Features

    Are some Companies Too Big to Succeed?

    During the global financial crisis, many banks were bailed out because they were ‘too big to fail’.


    Investment Research Group
    Investment Research Group
    Now research has found that some companies listed on a share market are not good investments because they are ‘too big to succeed’.

    A report by US firm Research Affiliates has found that many large companies in the US can underperform their peers for up to 10 years once they reach the number one position in their sector.

    One thing that happens is that large, dominant companies tend to attract the attention governments and regulators.

    “Was Goldman Sachs targeted with civil and criminal fraud charges because they have criminal intent to defraud their clients, while their competition is pure as the driven snow? Or have they become a symbol of success-to-excess, and pundits to want them to suffer?

    “Is Exxon Mobil regularly pilloried in Washington because people think that their business practices are monopolistic, their profit margins obscene, and their product is polluting and distasteful (never mind that we all buy it)? Or is it because their relentless business success makes them a popular target?

    “Microsoft’s opportunity in the spotlight came a decade ago, when they were attacked on the grounds of ‘monopolistic’ business practices, as was IBM in the prior decade.

    The decade before that, AT&T was successfully dismantled on the same basis.

    Its research has found the leader in any sector underperforms the average stock in its own sector by 3.5% per year for a multi-year period.

    “The damage doesn’t really slow down for at least a decade, as the top dog in each sector lags its own sector by 3.3% per year for the next decade! With compounding, the top stock in the 12 market sectors declined 28% in value relative to the average stock in its respective sector.”

    There is one mitigating factor; in most sectors, the number one position changes frequently. Therefore, it can be worthwhile owning a large, dominant company but it may be better to own number two or three that is on the way up, rather than number one which is sticking its head above the parapet for competitors, regulators and the government to take potshots at.

    A quick look at the New Zealand and Australian markets shows the “too big to succeed” label appears to apply here.

    There are any number of large companies that are regulated by the government or regulatory authorities in the areas of telecommunications, gambling and energy, for example. Many of these companies have underperformed the market in recent years.

    © 2022 David McEwen, NZCity

     Other Features News
     10 Sep: Spring clean your finances
     13 Aug: Plan ahead to give yourself a debt-free Christmas!
     10 Jul: Wise up to clear credit card debt
     07 May: Ways to prepare for the unexpected
     30 Mar: Time for a financial progress check
     10 Feb: Studying up on NZ Super
     10 Jan: Managing the back-to-school bills
     Top Stories

    RUGBY RUGBY
    Richie Mo'unga will play at first-five - his first test start of the year - for the All Blacks in Sunday's Rugby Championship match against the Springboks at Johannesburg's Ellis Park More...


    BUSINESS BUSINESS
    Gas users and experts call for federal crackdown on east coast 'gas cartel' More...



     Today's News

    Rugby:
    Richie Mo'unga will play at first-five - his first test start of the year - for the All Blacks in Sunday's Rugby Championship match against the Springboks at Johannesburg's Ellis Park 4:59

    Politics:
    A Labour MP's bullying allegations have come as a surprise to some of his workmates 4:49

    Entertainment:
    Kim Kardashian is "very supportive" of Pete Davidson's decision to attend therapy 21:50

    Entertainment:
    Ben Affleck's house is for sale for $30 million 21:20

    Law and Order:
    A search continues for missing Waikanae Beach man 21:19

    International:
    The Loop: Defence royal commission interim report released, Donald Trump invokes the Fifth Amendment, and Spider-Man turns 60 21:09

    Entertainment:
    Normani has "real life s*** going on in [her] personal life" 20:50

    Entertainment:
    Raymond Briggs has died at the age of 88 20:20

    Entertainment:
    Olivia Wilde has won her custody battle against her ex Jason Sudeikis 19:50

    Entertainment:
    Anne Heche's son is advocating for her in hospital 19:20


     News Search






    Power Search


    © 2022 New Zealand City Ltd