“Why can’t you pulverize the market just by buying the stocks with the highest share prices?” The previous question was asked by Jason Zweig, author of the rather excellent “Intelligent Investor” column in the Wall Street Journal.
Would it that staffers within the Department of Justice’s (DOJ) antitrust department were regular readers of Zweig. In particular his column from May 31st of this year. It might cause them to rethink their ongoing attack against entertainment behemoth Live Nation. That Live Nation can credibly be called a behemoth doesn’t just compliment it, but it also reveals the DOJ’s non-existent case against it.
Consider how DOJ antitrust chief Jonathan Kanter has framed the case. “Some monopolies are just so entrenched, and some problems so difficult to address, that they require decisive and effective solutions.” Stop and think about Kanter’s words. And then translate them. He’s saying Live Nation has become too successful, too valuable to the entertainment industry writ large as “a concert promoter, artist manager, venue owner, and ticket seller and reseller (Washington Post),” and in becoming what it presently is, Live Nation is very much beating the competition. Kanter would like to reverse the message of the market with force. Kanter’s actions yet again are the undoing of his case. Think about it.
In doing so, it’s useful to back up a few paragraphs to the passage from Zweig. The columnist was making a two-pronged point that past performance is a lousy predictor of the future, and that the future itself is unknowable. There’s quite simply no way of knowing what the most expensive shares will be in the future, which means there’s no credible way to buy them now. Live Nation explains Zweig’s thinking very well.
If we travel back in time ten years, Live Nation could claim a market cap of roughly $5 billion. Ten years ago the S&P 500 was sitting at 1886. Fast forward to 2024, and Live Nation has a market valuation of $26 billion while the S&P 500 sits at a near record high of 5841. Consider those numbers as an investor. Which was the better investment in October of 2014: the S&P or Live Nation?
It’s a waste of words to answer the question, but the obvious answer is that Live Nation would have been the better capital allocation. While its shares are up 420 percent in the last ten years, the S&P 500 is up just 200%. Both provided good returns, but Live Nation a much better one. Which is the point, and it’s one that the DOJ would be wise to internalize.
As evidenced by Live Nation’s market-beating performance in the last ten years, we can easily conclude that its future success was far from a foregone conclusion. Better yet, we can assume based on Live Nation’s substantial outperformance of the S&P 500 that the markets were more than a bit surprised by Live Nation’s remarkable performance.
In other words, the strategy that Live Nation saw fit to employ in years past was seen by investors as much less than a sure thing. Had it been a certainty, then it’s safe to say that Live Nation’s shares would have been much more fully priced in 2014 as a reflection of market awareness of its looming good fortune. If so, the S&P would have outperformed it.
Except that investors couldn’t see the future much in the same way that investors in the present can in no credible way predict the highest share prices a year from now, five years from now, or ten. Commerce in the U.S. is dynamic, at which point past performance is yet again a lousy predictor of the future.
It’s all a reminder that Jonathan Kanter hasn’t discovered a monopoly, he’s simply discovered extraordinary success that exceedingly few could foresee, including investors who are rewarded for occasionally seeing around the proverbial corner. All Kanter has going for him is hindsight. The only problem is that just as the latter isn’t the stuff of high investment returns, it’s similarly not the stuff of antitrust enforcement.