This week, the streaming landscape is serving up a Hollywood headline that would’ve sounded far-fetched not long ago: Netflix is being floated as a potential buyer of Warner Bros. and the HBO brand. Whether a deal materializes or not, the chatter is a reminder of how quickly the “center of gravity” can shift inside an industry.
The well-known line from 2010 has seemingly come full circle, not as a gotcha, but as a snapshot of how difficult competitive forecasting can be in real time. When asked about Netflix’s ability to upend the traditional media order, then–Time Warner CEO Jeff Bewkes famously compared the idea to “the Albanian army taking over the world.” It was an intuitive view in that moment: incumbents look immovable, challengers look small, and disruption looks unlikely…right up until it isn’t.
History is riddled with examples of established players being overtaken. The fish does occasionally eat the whale. And while it’s extremely hard to predict which upstarts will rise (or which dominant firms will stumble), this uncertainty is innate within competitive markets and is the cost of innovation and investment returns.
Every market cycle brings its own set of winners and losers, and despite what the supposed experts may say, it’s never clear in advance which segment will rise or fall. Some lagging asset classes can stay out of favor for years before suddenly leading again, while others that outperform can stay on top for longer than expected just before falling tremendously.
Can’t Miss Never Lasts Forever
Beyond Netflix, history offers plenty of reminders. In the early 1970s, the “Nifty Fifty”—a group of blue-chip U.S. companies like IBM, Xerox, and Polaroid—were considered can’t-miss investments. The consensus among consultants at the time was simple: if you weren’t recommending these stocks, you didn’t understand the market. They were viewed as so dominant, so reliable, that it supposedly didn’t matter what price you paid for them. But of course, things changed. Many of those once-unstoppable leaders stumbled, some dramatically. The market rotated, just as it tends to do.
The lesson is unavoidable: past performance cannot be used to reliably predict what will do best on a go-forward. Everyone will nod along, “yes, we know this.” Then in the next breath say:
- That fund has a very strong track record
- The upside/downside capture of that fund relative to the index is fantastic
- That company is showing significant EPS growth
Which they fail to realize directly contradicts the aforementioned phrase. Ask any wholesaler what funds they pitch to advisors, the answer is unequivocal: whichever is doing well. Performance chasing is a shapeshifter that takes many different forms. Regardless, it’s one of the most consistent ways to avoid the returns available in capital markets. These rotations happen not just across asset classes but inside industries themselves, right down to individual companies.
The Story of Vaylow
Vaylow began as a bold innovator: lean, hungry, and willing to take risks that larger competitors overlooked. With time, its breakthroughs reshaped an entire industry, attracting talent, customers, and investment. As Vaylow grew, the once-scrappy upstart became an established giant, hiring thousands and building a vast organizational structure to support its breadth.
But growth brought new challenges. Decision-making slowed. Layers of management formed. Bureaucracy replaced experimentation. The company that once thrived on bold ideas began to favor predictability, protecting what it had rather than inventing what was next.
Meanwhile, a new generation of companies, inspired by the gaps Vaylow began to ignore, emerged with fresh ideas and faster reflexes. They took risks the leader no longer could or would. Over time, these younger, smaller, hungrier competitors chipped away at Vaylow’s dominance, eventually overtaking the company that once defined the industry.
Replace Vaylow with the name of your favorite great company. Innovative upstarts grow into mature incumbents, become slower and more risk-averse, and ultimately pave the way for their own successors. If history rarely preserves the leaders of yesterday, why should we expect today’s industry giants to remain unchallenged tomorrow?
The Netflix/Warner Bros. situation isn’t an anomaly so much as another chapter in that story: the market’s habit of innovative disruption, and the occasional moment when the fish really does eat the whale.
CONSIDER
A recent surgery has forced me to change my daily habits for a while and nothing makes one more appreciative than being injured. A good friend had just the right text:
“A great attitude becomes a great mood, becomes a great day, which becomes a great month, then a great year, which ultimately produces a great life! Hang in there. You will overcome this setback and THRIVE!!!”
Attitude can’t solve everything, but it can sure solve a lot. Simple yet applicable to almost any issue, big or small.
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Let’s get after it this week!
Brooks
Brooks Palmer, CFP® is Head of Investments at Root where he helps identify, evaluate, and implement investment solutions tailored to clients’ needs. In Full-Court Press, he breaks down what’s happening in the markets—cutting through the noise and jargon—while connecting it to Root’s core investment tenets so you can make the most of your money and your life!
Investing involves risk, including the possible loss of principal. Past performance is not indicative of future results. The examples provided are hypothetical and for illustrative purposes only. The information presented should not be construed as investment advice or a recommendation to buy or sell any security or implement a particular strategy.
Advisory services are offered through Root Financial Partners, LLC, an SEC registered investment adviser.