GIC may have lost as much as S$760 million dollars in its investment in British oil giant BP, according to data provided by Bloomberg. Story from Corporate Observer.
Obviously GIC is not aware of this analysis.
Once a company gets very large, its growth rate inevitably slows. Its success will have attracted admirers, inflating its valuation. And then there is “tall poppy” syndrome, the tendency for the leading company in an industry (Goldman Sachs, Microsoft) to be the subject of political and regulatory attack.
Rob Arnott of Research Affliiates has quantified this process. He looked at the Wall Street sectors between 1952 and 2009 and saw how the leading stock in the sector performed over subsequent one, three, five and 10 year periods. On average, the tall poppies underperfomed by 3-4 percentage points a year. Getting exposure to a sector by choosing its largest component is thus the quick route to underperformance. Interestingly, Mr Arnott found the performance was worse when government spending is rising; suggesting that active govcerment means more regulation which means bad news for the big stocks.
Given that sector leaders comprise around one-quarter of the market value of the Russell 1000, that means investors could outperform by almost a percentage point a year by owning the entire sector minus its leader.
MM is vindicated. A few yrs back, he said he doesn’t understand mining, hence GIC did not go into mining projects. What is oil exploration except mining by another name? Temasek better watch out https://atans1.wordpress.com/2010/05/21/temasek-ignoring-mm-iii/