In the equity markets, efficiency rules.
Profitable and efficient companies are rewarded with higher stock prices, lower borrowing costs, and acquisition opportunities that can make a company even larger and more profitable.
In my opinion, if you look at many of the dominant companies today, they are often built through acquisitions and use digital technologies.
Investors allocate capital based on where they think growth is going to take place, and what companies will be most efficient in participating in that expansion.
If you are not growing, and aren’t all that efficient, well, good luck attracting interest from today’s investors.
If you look at the current market environment, investors face a tough choice in my view.
Do they invest in highly valued young companies such as Snap, Twitter (TWTR) or Tesla (TSLA)–or in traditional players with low valuations like Macy’s (M), Kohl’s (KSS), Target (TGT), or Kroger (KR)?
The less seasoned companies have young leaders, big markets to explore and access to plenty of capital, both financial and intellectual.
Some of the companies in the traditional industries have long records of good leadership and own quality assets, but are perceived to be in dead industries.
So which area do you fish in?
In my opinion, you can cast your net in both places. But, remember that you only have so much money, so you want to make it count.
You are trying to be efficient with your money. There’s that word again.