Ask Colin

Why is it that the leaders in a bull market rarely boom in the next bull market?

This is not a statistical fact. It is simply something that I have noticed over several cycles. I think there is more than one reason why it happens. In many cases more than one of these will be at work:

1. As you suggested in your extended question, companies go through a well-documented life cycle of growth, maturity and decline. However, this is too simplistic, because some companies go from growth to maturity to renewed growth several times. This is often associated with changes in chief executive and/or chairman.

2. Outstanding management, A great manager drives the company to high performance. Then (usually) he or she passes the range to a mediocre deputy who flounders and fails.

3. Highly successful companies, like governments which have been in office too long, get fat and lazy. When the boom ends they are hit hard. It usually takes a whole cycle to change the culture and reinvigorate the culture.

4. The industry, not just the company has matured and then declined. Unless the company can reinvent itself it will wither and die or be taken over as survivors cannibalise what is left of the industry.

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