Correct me if I'm wrong here, but isn't this the basic progression of things? ...
1) People invest their money in Company A
2) Company A now has more money to invest in their own growth (Note: this is money NOT from sales of their product; they now have a group other than their customers to please. The ultimate measure of the quality of a company's product or service, customer satisfaction, is now one step removed).
3) If this happens a lot, as in a bull market, Company A finds it's success is generating more cash than it may genuinely need (this is a grey area and very subjective, but lets assume this is the case)
4) This cash does little good in the form of cash and to put it into R&D, new facilities..etc. for the sake of "putting it to work" is sloppy business. They feel obligated (and they should) to put the investors money to use.
5) The alternative is aquisition (if instead, they invest it elsewhere, what kind of vote of confidence does that signal to their investors?) Company A buys Company B and voila! increased sales, market share, skilled labor and so on.
6) This comtinues until we have a few big companies instead of a lot of little ones. Is this good?
IMHO, a big company is simply not capable of providing the same level of service as a small company, it gets too impersonal. Show me a case where this is not true and I'll show you the exception to the rule (called Microsoft lately?). A large company is, by necessity, at least somewhat bureaucratic. Bureaucracy breeds mediocrity. Mediocrity is death to a business.
Bottom line is that in the normal scheme of things, I don't see how this can possibly last 10-15 years. We are already in the "merger-crazy phase" of the market.
Peter Lynch said of Magellen when he quit, at about $12B, "No one can manage this much money." It's now $42B+. Keep throwing money at a PM and he'll manage it, but it becomes increasingly difficult to do so with the same level of attention and care that one was able to provide at $500M or $1B. The flexibility also suffers.
The same is true of individual companies. We're throwing trillions at them and expecting them to carefully spend every dollar as if it were their own (and to make it grow). After awhile the sheer pace of it makes it virtually impossible to allocate it wisely. Slop steps in.
That's The Dave Theory Of Economics. If I'm way off base, I'd be glad to hear from you. My money's riding on this too! |
