Will winners keep winning?
With a 6-7 (4), 6-4, 6-4, 6-3 victory over seventh seed Matteo Berrettini in the 2021 Wimbledon final, Novak Djokovic claimed his 20th career Grand Slam title, tying Roger Federer’s and Rafael Nadal’s record.
Pete Sampras lies a distant second with 14 Grand Slam. He took the record from Roy Emerson who won his 12th major in 1970. He held the record for 30 years till Sampras surpassed it. Since then, it is fair to say that tennis has been dominated by the magnificent triumvirate of Federer, Nadal and Novak. There have been extended dominations before, for example in 80s it was all Edbergs, Bakers, McEnroes, Bjorgs etc. , but the scale of domination of current trio is unprecedented. They have between them 60 Grand Slam titles meaning mathematically they have won every major for 15 straight years!
In team sports such as football, Cristiana Ronaldo at 36 years is going strong. Messi just won a Copa America for Argentina at the age of 34.
Marco Van Basten, the iconic Dutch player retired at the tender age of 30. Maradona at 31 was way past his prime in 1991 world cup.
In “sedate” game of cricket, the records keep tumbling, power hitters galore and game overall has become more fast paced.
Now obviously, sports sciences have advanced and we getter better fitness, better analytics, and hence better athletes but benefits have disproportionately accrued to the winners at the top.
For some reason the sports analogy struck me when reading the earnings of Amazon, Facebook and Google (Disc: Long all). Now much has been written about FAANGs (Facebook, Apple, Amazon, Netflix (I would replace it with Nvidia and add Microsoft), Google). These are amazingly resilient businesses and seem to defy law of large numbers or even age just like sportsmen of today. Here are the current market caps of these companies:
They account for 40% of US GDP and 60% of China’s nominal GDP (US$ 14.5 trillion).
And they are growing!
The growth numbers at such scale are mind boggling.
They are nimble too. Facebook, for instance, is now planning to pivot from a social media company to a meta verse company. Amazon incubated AWS, pioneering cloud computing. Apple is pondering whether to go into electric cars.
The internet scale businesses do favor winner takes it all but even with this paradigm shift the resilience and domination of these businesses is amazing.
While focusing on resiliency we may be underestimating their longevity though.
Average age of a company in S&P in 1958 used to be 61 years and today it is now less than 18 years.
And just to put things in perspective Apple was formed in 1976 and Microsoft was established in 1975. This is even more amazing because these are technology businesses and hence more prone to disruption.
Google and Amazon have entered the adulthood and Facebook will follow soon.
The dynamism of capitalism and the associated creative destruction will ensure that these companies will be disrupted but maybe it will take them longer than their predecessors just like Roger Federer dominated till the ripe age of 37.
And how big will they get? S&P has historically grown in low double digits and these companies now comprise of 20-25% of S&P. If they keep growing like they are growing, what proportion will they become?
And this is not merely the inflation of numbers, as the chart below shows the dominance of a small set of companies is unprecedented:
From investment perspective, may be FAANGs+ MSFT currently offer the best risk adjusted returns.
Do the same above factors , the increasing returns to scale driven by internet also drive increased inequality ? Many suspect so. The chasm between a college degree holder and a high school graduate is much bigger now than before. We are seeing power law in sports, business and in job market too.
What else can we extrapolate from above?
Last century we divined the secrets of atoms. The latter part of the 20th century and much of the 21st century has been an age of bits, which has unleashed the information age.
The next era will be dominated by cells with biology at the center. The result will be human longevity and better health.
But will it benefit everyone?
What if rich people have access to all the new-fangled gene therapy and live beyond 100+ years whereas have-nots suffer a nasty and brutish existence?
The idea is not too farfetched. Obesity is now increasingly a function of poverty whereas in past corpulence was associated with affluence.
A power law in such a situation could have serious societal implications.