On Monday the Dow Jones Industrial Average jumped almost 1,000 points.  Just as I was saying most investors should be selling equities.  Do I wish I hadn’t said that?  Well………no. 

We’ve seen a lot of things change the last 8 years as globalization has impacted everyone.  We saw a "crisis" in manufacturing as the offshore trends of the 1980s became a wholesale exodus of manufacturing from the developed to the developing world.  We saw one of the largest white collar occupations in the developed world, IT services, undergo a crisis as everything from programming to data center management underwent wrenching change.  Even the largest players shifted from EDS and Accenture to TCS and Infosys (both of which keep wracking up double digit quarterly growth along with 40% margins!)  And more recently we’ve seen financial services start the shift from national to global as large American (and some large European) banks, insurance companies and investment banks are seeing their assets and reserves dwindle and governments are stepping in with quasi-nationalization programs.

There are still many industries that will see several more shifts.  Today the "medical tourism" market is in its humblest beginnings – yet the trend toward people flying from the developed countries to less developed for everything from hip replacements to heart surgery is happening (read article here).  And bio-engineering research has flourished outside the U.S. while domestic bans and grant-letting risk aversion has led to reductions in everything from stem-cell research to human application of bio-engineered products.  Big changes are still in front of us.  As are changes in who makes automobiles and airplanes – as well as who builds national or state infrastructure (in the USA and in the developed world) – and what brands remain leaders and which emerge. 

So if the 900+ point jump in the DJIA made you more comfortable, it’s just the calm before the storm – or maybe the eye of the hurricane.  More is coming.  The jump did not indicate a "return to normal", but rather simply a daily reaction to events – in this case global action to shore up bank reserves with public money.  From 1980 through 2000 was the greatest run in the history of American equities.  It was possible to make money simply by purchasing index funds (baskets of equities) and holding them.  But that era has passed.  And things are going to change.  Global market shifts cannot be ignored even by large American institutions – be they governmental (the SEC or FDIC), quasi-governmental (Freddie Mac and Fannie Mae) or non-governmental (Bear Sterns, Lehman Brothers, AIG, etc.).  Now that the world has been populated with a large number of private equity funds and hedge funds, the landscape has changed for investors – in the USA and around the world. 

Does that mean all equities will do poorly?  Of course not.  But only those who adjust to market shifts will do well.  Johnson & Johnson has long been a company that uses internal Disruptions and maintains White Space to find opportunities for global growth.  And we’re seeing that amidst the recent market problems J&J is announcing it will continue to grow sales and profits through its combination of consumer goods, medical devices and prescription drug products sold in the USA and around the world (read article here.)  Meanwhile PepsiCo – one of the globe’s best known branded goods companies – announced it sees itself tied up in knots by fluctuating commodity prices and softening of beverage and snack sales.  PepsiCo is expecting a profit problem, and is planning layoffs (read article here.)  Even though Pepsi was the first soft drink company to globalize, it’s not adjusting fast enough and effectively enough to market shifts. 

So, it will be up to investors to be a lot more careful about investing in the future.  What used to portend high rates of return cannot be depended upon any longer.  For many Americans, they will for the first time have to get a lot smarter about non-U.S. companies.  And they will have to invest based upon future market positions – which could change rapidly – not based upon company legacies.  Because overall, we can expect a lot of change among the market leaders as this shifting economy accelerates. 

In the end, those businesses that spend a lot of time scenario planning the future will do better than those who try to focus on past "core" businesses.  Those who obsess about competitors will do a lot better than those who obsess about "execution."  Those who frequently Disrupt themselves in order to avoid Defending & Extending the past will do better than those who seek to reinforce Lock-in.  And those who keep White Space alive with new projects that have the permission and resources to define a new Success Formula will do the best of all.  And finding these companies will be harder and harder in a world where the private equity and hedge fund managers can create their own deals (like the recent Berkshire Hathaway investment in GE) than individuals will be able to do – because the investment banks are rapidly losing their positions as the brokers.