As the World Cup rolls on, I note that in the investing world, just like in football, we are seeing the emergence of a handful of superstar companies. This is no coincidence - in both football and equities we are seeing the same force at play.
As rich as King Midas, as rich as Ronaldo, as rich as the FAANGs
As rich as King Midas, as rich as Ronaldo
Time was, when the top footballers in the land had their wages capped. They were well paid, in much the same way that a GP, or headteacher was well paid. But they did not earn enough to secure their financial future by the time they retired from the game.
I read that the average pay for a premiership football player is now £50,000 a week. In just one season, this fortunate individual earns £2.5 million.
Is it a good thing?
Is it a good thing that the professional players who play for local sides, with just a following in their local area, earn a fraction of that? Of course not. Would Messi still be playing football if he earned £5,000 a week instead of £50,000. My guess is yes, but football is competitive. If Barcelona capped the pay of all their players at say £250,000 a year, they would all go and play for someone else. The fans don’t benefit. Only some kind of global agreement to cap top pay to footballers would solve this one. And that ain’t going to happen.
In fact, you may be able to date the moment it all went wrong to the Bosman Ruling - a 1995 court decision that players could move to another team at the end of their contract without their existing club getting a fee. The ruling also removed the cap on the number of foreign players who could play for a team. At the time, the ruling seemed eminently sensible.
But the Bosman Ruling in combination with digital technology means that some kind of European league is, in my opinion, inevitable.
Manchester United, with its 659 million fans worldwide will do okay, not so sure about the teams who tend to frequent the lower reaches of the Premiership and sometimes the division below, let alone the teams further down the league.
Meanwhile, as huge fortunes roll in at the top, average pay for division two players in 2015 was £40,350 a year.
Those famous analysts at ABBA said it succinctly: “The winner takes it all.”
It is like that with the stock market too. “The impact they are having is growing quite awe inspiring,” said John Authers in the FT this week. He was referring to the FAANGs - Facebook, Apple, Amazon, Netflix, Google - “without them the US stock market would have fallen this year.”
Mr Authers lumps the FAANGs into a group he calls momentum - stocks that people buy into because they have been rising. Across the world, momentum stocks are up roughly eight per cent since May, and close to the 12-month peak. By contrast, value stocks - that’s equities people buy into because they are cheap - are flat since May and down roughly 10 per cent since the 12-month peak.
Mr Authers calls the rising disparity between momentum and value stocks “unnerving,” but I think there is a good reason for the differential.
The great disruption
We are at the early stages of seeing the greatest disruption to fall upon the global economy and indeed society since World War 2. Technology is disrupting everything. No industry will escape unscathed.
Football is being disruptive as communications technology leads us to a European Super League, relegating all teams that don’t make it to ‘no one cares’ category. Technology is set to disrupt the energy industry, the auto industry, and banks - it’s impact on retail is there for everyone to see. It has even disrupted the gin and beer business, as the internet helps niche players appeal to a global audience.
We are also seeing disruption of society, as the labour market is hollowed out, leading to the rise of political extremism - and populists blame globalisation, immigration and anything that they can think of except the money machine that is technology.
Facebook has left its Cambridge Analytica troubles behind, shares hit a new all-time high a few days ago, up almost a quarter since the Cambridge Analytica crisis. Even Tesla seems to be recovering from the sharp falls seen earlier this year and shares are just 15 per cent off their peak. The point about Tesla that critics don’t get is that it is a classic disruptor. Critics see the company as an upstart with no hope of competing with the big boys. The reality is that Tesla specialises in the two areas that will turn the car industry upside down, lithium ion batteries and AI - and in these areas, it’s the rest of the industry that is the upstart.
Winner takes it all
You might not like it - I have strong misgivings - but just like in football, we are seeing the creation of a winner takes it all economy. Momentum stocks are not just rising because of momentum – although some might be – they are rising because just like certain football teams from Barcelona, Manchester, Madrid, Milan, Liverpool and London, they sit on the right side of this massive divide that has opened up between the small number of winners and the rest.
These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees