Don’t Switch Horses Midstream

The Oldest Idea In Finance

The more things change, the more they stay the same. In 1138, four partners in southwestern France pooled their capital to build and operate three mills. They ran them for profit and divided the gains according to each partner’s ownership stake. The East India Company is often cited as one of the first enterprises to pay dividends, but as William Goetzmann notes in Money Changes Everything—How Finance Made Civilization Possible, profit‑sharing entities go back a thousand years or more. The idea is simple and durable: owners receive a share of the profits.

That basic logic held for centuries. Yet in recent years, many investors seem to care only about how bright the future looks. Actual profit or cash flow distributions are secondary thoughts; what matters is potential. That all changed with the dawn of 2026.

Technology has dominated in recent years, with its performance crushing almost everything else. Not so this year. The tech-heavy NASDAQ is down about 1% year-to-date, with Microsoft and Amazon off roughly 20% and 11%, respectively. Meanwhile, old-economy names are back in favor. The Dividend Aristocrats Index, along with companies like Deere and Walmart, are up about 9%, 38%, and 13%, respectively.

If you focus only on headlines, you might conclude that the market is having a rough year. In reality, some industries are struggling, and others are doing quite well. Leadership rotations tend to show up when almost no one expects them.

The lesson is the same as it has always been: diversification and discipline matter.

The Rotation Nobody Saw Coming

Diversification is almost always your friend. If you concentrate in a hot sector and the tide goes out—as it has for Microsoft—you can quickly find yourself sitting on a 30% drawdown. The rotation over the last several months has caused Microsoft’s trailing one-year return to turn negative, while the S&P 500 has advanced about 16% over the same period. Yet holders with a 10+ year time horizon are still far ahead of the index. Short-term market declines should not define long-term market strategies. Chasing what just worked is dangerous. Having a clear, disciplined strategy is what carries you through rough patches.

The temptation to trade big swings is powerful. In December 2021, Microsoft hit about $340. Within eleven months, it fell to around $230—a roughly 30% decline, similar to the pullback we see now. From that low, the stock went on to climb to roughly $555 over the next five years. These cycles are not new. Technology has had its moments of extraordinary leadership, just as more traditional dividend‑paying stocks outperformed for decades.

As we have just been reminded, the investment climate can change quickly. Pick your horse thoughtfully, and stay on it.

Which returns us to Money Changes Everything.

Goetzmann’s book offers a rich historical tour of the origin of money. The oldest Uruk tablets, dating to around 3100 BCE, are essentially accounting records, tracking exchanges of goods, labor, and debt. From roughly 2000 to 1800 BCE, records show that Mesopotamian women owned land, leased it out, and sometimes operated in partnership arrangements. Even then, capital was pooled, and profit was the purpose.

Today, the temptation is to chase the appearance of fast money in the latest AI story. But when the dust settles, finance almost always comes back to the same core principle: cash flow and sharing real profits.

In the end, profits matter just as they have for thousands of years.

Observations on the Market No. 416