Why did Harvey Norman beat Amazon? It’s a cautionary tale
Chris Brycki
If you had told investors in early 2021 that Harvey Norman would outperform Amazon over the next five years, you would have laughed out loud.
At the time, much of Australia was in lockdown. The offices were empty. The malls were quiet. Everything had moved online. If you say that e-commerce will explode, you are right. If you say cloud computing will dominate, you are right.
If you chose the global leader in both, you probably bought Amazon.
But since the beginning of 2021, Amazon’s share price has lagged behind old-economy retailers such as Walmart and Costco in the US and even Australia’s owner Harvey Norman.
This isn’t because Amazon failed. It continued to grow. He continued to invest. It remained a dominant global business. The problem wasn’t in the narrative, the problem was in the expectations.
In early 2021, Amazon was trading at a valuation that assumed years of uninterrupted high growth. Investors were paying not just for strong earnings, but also for excellence.
Owning the best companies doesn’t pay off. They come from having places where the gap between perception and reality moves in your favor.
Investing is not about guessing what will happen. It’s about understanding what the market currently expects to happen and then asking whether reality will be better or worse than those expectations.
Everyone believed that e-commerce and cloud would dominate in 2021. This belief was not an advantage, it was a consensus and the price already reflected it. When perfection is priced, even good results can be disappointing. This lesson is troubling for investors.
Owning the best companies doesn’t pay off. They come from those who own companies where the gap between perception and reality moves in your favor.
If a company is universally loved, widely owned and priced for excellence, the hurdle is high. It needs to deliver not only strong results, but results that exceed already high expectations.
The hurdle is lower if a company is undervalued and conservatively priced. It can surprise on the upside even with modest improvements. That’s why it’s so hard to beat the market by picking stocks.
To consistently outperform, you must understand what is currently priced. You must identify where expectations are too optimistic or too pessimistic and be right when the crowd is wrong. That’s an extraordinarily high bar.
Professional fund managers dedicate their careers to this task. They have research teams, models, and access to company management. But decades of evidence shows that most fail to outperform the market after fees over the long term.
This is not because they lack intelligence, but because the markets are competitive. Every idea has a buyer and a seller, and prices adjust quickly. Clear trends are quickly priced in, and when something is set in stone it usually is.
For ordinary investors, trying to beat the market often leads to concentrated portfolios and emotional decisions. He’s after what works. Selling what is disappointing. Paying high prices for popular stories. But there is a simpler approach.
Instead of trying to guess which stock will beat expectations, you can own the entire market.
An indexed ETF doesn’t depend on you being smarter than everyone else. It recognizes that markets are generally efficient most of the time. It allows you to meet thousands of companies from different sectors and countries.
You benefit from overall economic growth and capture winners as they arise. You avoid the risk of being heavily exposed to a single narrative that is already priced for perfection.
Over time, wide variety and low costs quietly combine. You don’t need to be smarter than the market to create wealth. You just need to participate consistently and at a low cost.
Beating the market requires you to be both contrarian and correct, again and again. Knowing how difficult it is to beat the market may be the most valuable investing lesson for most investors.
Chris Brycki is the founder and CEO of online investment advisor Stockspot.
- The advice given in this article is general in nature and is not intended to influence readers’ decisions about investments or financial products. They should always seek their own professional advice, taking into account their personal circumstances, before making any financial decisions.
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