Wall Street, we have a problem – Lessons we can learn from failing companies [Video]

How the mighty fall and the lessons we can learn from their crash

If there’s one thing Wall Street excels at, it’s finding companies with growth potential, extracting every bit of value from them, and moving on to the next hot stock. 

In 1990, IBM dominated computing, Sears ruled retail, and GE led industry. Today, these once-invincible giants have faded, replaced by Apple, Amazon, and Microsoft. 

In the winner-take-all Wall Street arena, the cycle of disruption and innovation is constantly reshaping the corporate landscape and one company’s failure is another’s window of opportunity.  

Reviewing the stocks that dominated in 1990 one thing is clear - today's titans bear little similarity to the corporate leaders of a few decades ago.

Top ten stocks in 1990*

• IBM
• Exxon 
• General Electric
• AT&T
• Philip Morris
• Merck
• Chevron
• Coca-Cola
• Procter & Gamble
• Bristol-Myers Squibb

Top ten stock in 2023*

• Apple Inc.
• Microsoft Corporation
• Alphabet Inc.
• Amazon.Com, Inc.
• Nvidia Corporation
• Berkshire Hathaway Inc.
• Tesla, Inc.
• Meta Platforms, Inc.
• Visa Inc.
• United Health Group Inc. 

*Based on market cap

Comparing the charts of IBM and Apple between 1990-2023, it’s obvious that one company grew exponentially while the other saw modest gains and barely kept up with the overall market. 

Let’s examine why iconic companies like IBM, AT&T, and Philip Morris fell from dominance and identify common traps companies fall into. Their missteps, failures, and dramatic declines should be a warning for any company looking to stay ahead of the pack.

Rigidity and attachment to legacy products

Kodak infamously clung to film-based photography even as digital cameras transformed the industry. Legacy companies like Sears and Xerox were dethroned by e-commerce and digital disruption. 

No matter how attached executives are to the products, business models, and paradigms that generated initial success, they must remain open to change to meet changing consumer demand. 

Embrace reinvention rather than fighting progress. 

Key insight: Dominance can vanish if companies don't acknowledge what’s next.

Maintain your innovative drive

Once-hot companies like AOL and Yahoo grew complacent, this allowed hungry competitors to steal market share and dominate in emerging areas like search and social media. To remain competitive, companies must continue to innovate and take risks.

Key insight: Leaders who rest on their laurels get lapped by those hungry to invent the future. 

Execute strategy flawlessly

For companies making acquisitions, integration issues often cause deals to drain time and money. When looking to expand through acquisition, leadership must ensure seamless execution and a clear vision.

Likewise, new product launches and restructurings need skillful orchestration. Miscues and failure to correct course can create a space that faster adversaries can exploit.

Key insight: Flawless execution and a well-thought-out strategy are necessary to maintaining your competitive edge.

Do not ignore major societal shifts 

Philip Morris dominated when smoking was in style but faced major headwinds as public sentiment soured. Recognize when society and social norms move against you, and be ready to adapt accordingly. Sentiment can shift faster than anticipated - don’t get caught on the wrong side.

Key insight: Companies wedded to dying industries often go down with the ship. 

Smaller rivals can topple titans 

In the 1990s, major PC manufacturers like Dell, Compaq, and Gateway controlled the personal computing market. But swarms of smaller, nimble competitors ate away at their dominance by offering cheaper, customizable options with faster innovation cycles.

Do not underestimate crowds of minor brands nibbling away at your profits – the barriers to entry may be lower than giants assume. 

Key insight: Treat both big and small competitors as a threat to your bottom line.

Avoid bureaucracy and complexity

As companies become large and successful, unnecessary bureaucracy, layers, and complexity become the norm. Top heaviness slows decisions, limits flexibility, and buries innovation in red tape. Streamlined competitors thereby seize an advantage.  

Ruthlessly fight organizational bloat, aimless processes, and any changes that limit productivity. 

Key insight: Staying lean and responsive to change is more beneficial than growing at any cost.

Leadership matters 

Poor leadership can quickly derail once-thriving corporations. Carly Fiorina’s reign at HP was fraught with questionable acquisitions and corporate infighting. 

When selecting a leader, ask whether your prospect exhibits the vision, smarts, and courage needed to navigate the treacherous corporate waters. Beware of anyone who doesn’t understand or is detached from the core business and values.  

Key insight: Where you’re going isn’t as important as who is guiding you.

Wall Street rewards innovation and growth

The equities market is enamored by disruptive companies with amazing growth potential representing the future. The market looks to identify these companies early and allocate capital to them. Companies like Apple, Tesla, and Nvidia are dominating the market thanks to sales and future growth trajectory. 

Companies like Coca-Cola and Exxon have become dividend-paying stocks that represent the old guard rather than the exciting story. 

Sales and earnings are the rocket fuel for price appreciation in the stock market and when they wane, investors will pivot to more promising opportunities.  

For investors, identifying emergent disruptors early is key. 

Peloton disrupted fitness in 2020 by providing in-home exercise solutions amidst lockdowns. Crocs saw revenues soar over 60% in 2022 on surging demand. 
Upstart has disrupted lending through its AI underwriting platform. 
Carvana changed used car buying by moving the process entirely online.

Stop investing in stocks with stalling sales, earnings, and revenues, and search for disruptors and innovators as they start to gain momentum.

No company stays on top forever

No matter how dominant a company seems at the moment, the reality is that no stock will remain on top forever. 

Savvy investors recognize this truth and use it to their advantage as they build wealth and grow their portfolios over time. An investor must look at leadership changes as an opportunity to reallocate capital and continue to work towards their financial goal. 

The worst thing an investor can do is fall in love with a stock’s past performance. There is a reason the market sours on a stock, and the quicker an investor can recognize, reorient, and redeploy capital, the wealthier they will be.

Like the leader of a company, personal investors should remain flexible, agile, and open-minded to identify shifts and disruptions. 

Massive change is inevitable. Tomorrow’s most profitable companies will be built on ideas and paradigms we can’t even imagine today.

Gazing into the future

No one can predict with certainty where the stock market is heading or what new products and disruptive technology will emerge, but it’s always fun to try and spot emerging trends. 

Let’s look at a few sectors that could dominate the stock market in the coming decades.

Clean energy

Oil is out. Clean is cool. 

Solar, wind, battery, and hydrogen companies could displace today’s oil and gas giants. Next-gen providers like Tesla and SunRun are already gaining market momentum.

Bioengineering

Gene editing is hot! 

Companies like Ginkgo Bioworks, Precision BioSciences, and 10x Genomics are pushing bioengineering forward to improve healthcare, agriculture, and manufacturing. By harnessing the power of cells, these innovators aim to engineer biology itself for the benefit of humankind.

Quantum computing

With the growth of AI, VR, and data mining, we need faster computers.

Startups like IonQ and Rigetti are racing to make quantum computing a reality. These pioneers aim to transcend the limits of classical computing and usher in an era of lightning-fast innovation.

Cryptocurrencies

Could crypto be the future of currency?

If so, exchanges like Coinbase and service providers enabling institutional adoption will see their valuations balloon. Bitcoin itself could make another run. Don’t forget about the Bitcoin miners, like Marathon Digital Holdings and Riot Platforms, as they’ll benefit from growth.  

Psychedelics 

Not just for hippies anymore!

Companies including ATAI Life Sciences, Compass Pathways, and MindMed are researching and developing psychedelic-based therapies for depression, PTSD, addiction, and more. 

Artificial intelligence

If we can’t beat ‘em, we should make money from ‘em.

AI research and applications are expected to see explosive growth in the coming years. Leaders in AI like Google and Nvidia are already on the rise, and new entrants can emerge from anywhere.

Change is inevitable

After studying stock market trends one thing is obvious, change happens. By identifying where needs are evolving, innovation is brewing, and consumer behavior is shifting, investors can shift their focus to the stocks redefining the market, and avoid owning relics of the past. As an investor, early identification of transformative technologies will drive a huge upside. 

If you plan on investing in the equities market, you must stay alert and aware of the changing landscape because today’s corporate giant may become tomorrow’s cautionary tale.