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incredible stats.

" All this comes from recent research by Arizona State University finance professor Hendrik Bessembinder. Examining results from 29,078 common stocks in the database of the Center for Research in Security Prices, or CRSP, going back to Dec. 31, 1925, he found that most stocks lost money and that a few big winners generated huge returns over time. His 2020 research noted that 96% of stocks merely matched the return of one-month Treasury bills from 1926 through 2019. From that, one might conclude that the risk and expense of buying equities isn’t worth the trouble. After all, only 86 stocks produced $16 trillion in wealth over that span."

https://www.barrons.com/articles/lessons-stock-ret...

Just as a personal favour to me, could you stop doing click bait thread titles which start a phrase but

: )

" Just as a personal favour to me, could you stop doing click bait thread titles which start a phrase but

: )"

good morning old friend, as a personal favor to me, can you explain how that Barrons article is click bait? Are all Barrons articles, click bait? Many of us continue to learn, we all don't know everything, thank you for sharing the brilliance of your reply. Your pal, hc.

filled with what?

It is behind a paywall, so posting the link is pretty useless.

Yeah, going back as far as 1925 is worthless. Times before 1950 or 1960 are very different from the world of today.


"only 86 stocks produced $16 trillion in wealth over that span."

I am inclined to think that he did some major cherry-picking here.

" It is behind a paywall, so posting the link is pretty useless."


a fellow poster here has educated us all with respect to pay walls. Perhaps he will offer the solution, again. Good luck!

“ The lesson from his study would seem to be to stay invested in the market and let the winners run, which results in their having an outsize weight in an unmanaged index. Rebalancing to reduce the winners’ outsize presence has been famously likened by the legendary Fidelity Magellan manager Peter Lynch to “pulling out the flowers and watering the weeds.”

Yet a cap-weighted index will have you buying more overvalued stocks and less undervalued stocks. I am only about 10% index, but I most recently bought Equal weighted index ETFs in 2020- QQQE and RSP. The decision was certainly influenced by some good pro & con discussions here.

good morning old friend, as a personal favor to me, can you explain how that Barrons article is click bait?

Not the article, your post.
The title of the thread starts but then

“ The lesson from his study would seem to be to stay invested in the market and let the winners run,"

This has been the investing mantra since at least 1837.
"David Richardo, a trader who accumulated a fortune the early 1800's. This quote in a book written in 1837 captures two golden rules of trend following.
Cut short your losses, - let your profits run on."




Yet a cap-weighted index will have you buying more overvalued stocks and less undervalued stocks.

There is no evidence at all that this is correct. No evidence that the largest cap stocks are overvalued and the lowest cap stocks are undervalued.

This is kind of like the erroneous strategy of buying stocks that have fallen farthest from their 52 week high because "they have nowhere to go but up".

There Are Two Types Of People In This World.
1) Those Who Can Extrapolate From Incomplete Data

Not the article, your post.
The title of the thread starts but then

This happened to me too. The reason was (and this might still be unchanged) that when starting a new thread you could enter a longer title text than the maximum length of titles in the thread list. So the long text you entered was cut after(!) the post was published.

Yet a cap-weighted index will have you buying more overvalued stocks and less undervalued stocks.
There is no evidence at all that this is correct. No evidence that the largest cap stocks are overvalued and the lowest cap stocks are undervalued.

Well, there is the theoretical evidence which shows why cap weight is a bad idea for good returns, and also the empirical evidence that it's an underperforming strategy which confirms the theory.
What sort of evidence were you looking for?

Sometimes a few very large firms do better than the average, as has happened recently and in the late 1990s. This is very much the exception, historically speaking.

A random (and amusing) paper which is a bit of a mix of theory and backwards looking empiricism.
https://www.researchaffiliates.com/publications/jo...
The most interesting conclusion isn't that equal weight is good, nor that any other particular "alpha seeking" weight is good, but that cap weight is quite the outlier for poor performance among all the possible weightings they tried. Usually, and on average over time, but certainly not always.

e.g., for any random 12-month stretch 1986-2016, there was a 64% chance that a slate of the five largest stocks by market cap (rebuilt quarterly) would do worse than the S&P 500. The biggest 5 lost the race by 3.18%/year overall. This is not a proof that the biggest 5 will do worse in the next year of five years (though it's in general the likely bet), but it is a wonderful rebuttal to the notion that you obviously always want to overweight the largest because, well, they're the biggest winners and/or it's different this time.

Jim

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