Disappointed by the performance of the Dow and the S&P 500 lately? Who isn’t, right? But don’t blame the economy — at least not entirely. It’s those standard-bearer companies on the Dow that are wrong, say Jim Troup and Sharon Michalsky, authors of
DIVORCING THE DOW. Digital science has caused a huge shift in the way companies grow and profit, they say, and Dow stocks aren’t the best gauge of the economy’s temperature anymore.
“The worst thing an investor can do is listen to an advisor who says, ‘Just hold on, the market will come back, it always does,’” Michalsky says. “That’s not true anymore.”
She advises investors to dump conventional thinking. The Dow, S&P, and other so-called standard bearers are investment products, not the magical results of scientific study and research. “As we enter this new era, small companies are going to be more profitable because they will have the flex-ibility and be tuned into their market,” Michalsky predicts.
Not wanting to brand all the big boys as losers, though, she says those that can retool and retune and use digital science can also be winners, citing IBM’s breakdown and makeover into smaller, more agile units.
Michalsky and Troup, both vice presidents at Salomon Smith Barney with some 20 years experience, have come up with about 60 companies they call the “Digital Dow” (see their picks at www.divorcingthedow.com). The list isn’t about tech companies — it includes education, human resources, and retail companies that take advantage of digital science. “Take [noted investor] Warren Buffett’s advice to buy companies you use a step further than McDonald’s. What about paying for your gas at the pump? What smart company figured that out? Those are the ones to invest in,” Michalsky says.