By james art WASHINGTON, DC – JANUARY 24: US Attorney General Merrick Garland is joined by Assistant Attorney General … [+]
“Why can’t you blow the market by simply 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 Wall Street Journal.
Were officials in the Department of Justice’s (DOJ) antitrust division regular readers of Zweig. In particular, his column of May 31 of this year That could prompt them to rethink their ongoing attack on entertainment giant Live Nation. That Live Nation can credibly call itself a behemoth not only praises it, but also exposes the non-existent DOJ case against it.
Consider how the Justice Department’s antitrust chief, Jonathan Cantor, framed the case. “Some monopolies are so entrenched and some problems are so intractable that they require decisive and effective solutions.” Stop and think about Kanter’s words. And then translate them. He says Live Nation has become too successful, too valuable to the entertainment industry as a “concert promoter, artist manager, venue owner and ticket seller and reseller (The Washington Post),” and becoming what it is now, Live Nation is beating the competition by a lot. Kanter would like to forcefully get the message across to the market. Kanter’s actions once again fail his case. Think about it.
In doing so, it is helpful to back up a few paragraphs to the Zweig passage. The columnist was making a two-pronged argument that past performance is a crappy indicator of the future and that the future itself is unknown. There’s simply no way of knowing what the most expensive stocks will be in the future, which means there’s no reliable way to buy them now. Live Nation explains Zweig’s thinking very well.
Going back ten years, Live Nation could claim a market capitalization of roughly $5 billion. Ten years ago, the S&P 500 was 1,886. Fast forward to 2024, and Live Nation has a market cap of $26 billion, while the S&P 500 sits at a near-record high of 5,841. Think about these numbers as an investor. Which was the better investment in October 2014: S&P or Live Nation?
It’s a waste of words to answer the question, but the obvious answer is that Live Nation would be the better allocation of capital. While its shares are up 420% over the past ten years, the S&P 500 is up just 200%. Both provided good returns, but Live Nation much better. Which is the goal, and it’s what the DOJ would be wise to internalize.
As evidenced by Live Nation’s astounding market performance over the past ten years, we can easily conclude that its future success is far from a foregone conclusion. Better yet, we can surmise based on Live Nation’s significant performance against the S&P 500 that the markets were more than a little surprised by Live Nation’s remarkable performance.
In other words, the strategy that Live Nation saw fit to employ in the past was perceived by investors as a much less sure thing. If it were certain, then it’s safe to say that Live Nation’s stock would have been much more fully appreciated in 2014, reflecting the market’s awareness of impending good fortune. If it did, the S&P would surpassed it.
Except that investors could not see the future in the same way that investors in the present could not possibly predict the highest stock prices in a year, five years, or ten. US trading is dynamic and at this point past performance is once again a poor predictor of the future.
All of this is a reminder that Jonathan Canter didn’t discover a monopoly, he just discovered extraordinary success that very few could have predicted, including investors who are rewarded for occasionally seeing around the proverbial corner. Everything Kanter does for him is a flashback. The only problem is that just as the latter is not a matter of high ROI, neither is it a matter of antitrust enforcement.