Why Diversification Still Makes Sense: Lessons From the Past

Investors over the last decade would have done very, very well by owning large, US tech companies and avoiding everything else. Many people are convinced that formula will continue to work. History tells us it likely won’t.

First, a reminder. Over the last 10 years, if you had started with $1, that investment would have become $6.59 if you only owned US tech companies, compared to $3.26 owning the entire US market and, most disappointing, $1.62 owning non-US companies. Why bother owning anything other than US tech?

The chart below provides your answer. It shows the largest companies in the world by market capitalization, since 1980. This is essentially a snapshot of which large companies’ stocks did best in the prior decade.

To summarize:

In 1980: Global oil companies dominated.

In 1990: Japanese companies dominated.

In 2000: Telecom and some tech companies dominated – mostly US-based.

In 2010: The rise of China and resurgence of oil.

In 2020: Well, you know. If you updated this last column to 2025, it would look the same, only more-so: 8 out of 10 in the US, all tech.

At the risk of sounding like Forrest Gump, I feel a personal connection with each of these cycles. I grew up in Dallas in the 1970s, when oil ruled the world. I lived in Asia (including, briefly, Tokyo) during the Japanese bubble and subsequent bust. As a Wall Street banker, I worked primarily with high-flying telecom companies in the 1990s and early 2000s. As a 15-year resident of Hong Kong, I saw up-close the dramatic rise of the Chinese economy. And during the past 15 years, at Old Peak Finance, we have worked with multiple IT executives and investors.

In every case, at least a part of me thought: well, that’s it. The world will forever be dominated by oil/Japan/telecom/China/US tech. Thankfully, I am enough of a skeptic not to believe anything is that simple. You should be, too.

It’s so easy to think the recent past is the new normal. Do so at your own peril.