Each morning we peruse a variety of research sites to see if there is anything exciting, new, and intriguing. Rarely does one find something that triggers a knee-jerk reaction like a recent paper by Hendrik Bessembinder.
The title almost FORCES you to read further:
Do Stocks Outperform Treasury Bills?
And the abstract reads like a horror film if you are an equity investor:
Einhorn’s FOF Re-positions Portfolio, Makes New Seed Investment In Year Marked By “Speculative Exuberance”
It has not just been rough year for David Einhorn's own fund. Einhorn's Greenlight Masters fund of hedge funds was down 3% net for the first half of 2020, matching the S&P 500's return for those six months. In his August letter to investors, which was reviewed by ValueWalk, the Greenlight Masters team noted that Read More
The good professor highlights that the distribution of stock returns is driven by a small percentage of really big winners.
Of course, this finding is not new:
- Our study on the distribution of stock returns
- The Longboard study on the distribution, “The Capitalism Distribution” (1)
However, Dr. Bessembinder pulls out all the stops and conducts a lot of incredibly interesting research into the details like only an academic writer can do (their job is primarily dedicated to research!).
A few facts/findings over the 1926 to 2015 time horizon:
- Only 47.7% of all monthly stock returns from the CRSP database (NYSE/AMEX/NASDAQ) are larger than the one-month Treasury rate.
- 42.1% of common stock holding period returns beat the holding return on T-bills.
- The 86 top-performing stocks — less 33bps of the entire universe — account for over half of the total wealth created.
- …and on and on…
My favorite table is the last one, which maps out the top lifetime wealth creators in the US stock market:
The top 5– Exxon, Apple, GE, Microsoft, and IBM — account for over 10% of lifetime wealth on the entire stock market. The top 15 names account for 16.26% of total wealth EVER created in the US stock market.
Incredible. Dig in.
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- Ben Carlson has a discussion on the results here
Article by Wesley R. Gray, Ph.D.Wesley R. Gray, Ph.D. – Alpha Architect