Why technology stocks, winners of the 2010s, will rule the 2020s, too


Why technology stocks, winners of the 2010s, will rule the 2020s, too

Will the investing strategies that worked during the 2010s continue to dominate the 2020s?

Most pundits conclude that a new leadership in stocks will emerge. They invoke “reversion to the mean” as the reason recent winners will not necessarily be future winners. 

Reversion to the mean is a very real and usually sound investment rule which argues that eventually winners will become losers and losers will become winners. Think of the coin-flipping game we played in fourth grade. An abundance of coin tosses yielding heads will eventually yield a like number of tails. Voila! Reversion to the mean.

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The top 10 stocks measured by market capitalization at the end of the 1970s through Dec. 23, 2019 , for example, reveals many of the winners during that decade did not make the list again. And, at the end of the 1970s, six of the top 10 were energy companies. Two companies never made the list again: AT&T and Eastman Kodak. No. 10 on the list, GE, is no longer the powerhouse company it once was and hasn’t made the list for 20 years. 

Microsoft, however, was the No. 1 stock at the end of the 1990s, No. 5 during the 2000s; and No. 1 again this decade. And 2010s  top 10 list is as chock full of technology companies as the number of energy companies that dominated the 1970s.  

Though rules have exceptions, below are three reasons why technology will continue to deliver robust returns in the next decade.  

Three reasons why technology stocks will continue to deliver robust returns in the next decade.

Dividends growing faster than the market

Growth stocks don’t necessarily need to dominate for the technology sector to perform. Many technology stocks now pay a dividend and are growing their dividends much faster than the overall market. As investors seek yield – with interest rates near historical lows and real rates barely positive – many technology stocks sport dividend yields above the market and dividend growth two and three times the dividend growth of the overall market.


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