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Wealth Creation Confined to Just 4% of Publicly Traded Stocks
According to a recently updated study by Professor Hendrik Bessembinder, a finance professor at the W.P. Carey School of Business at Arizona State University, most stocks are not good investments. They don't even beat the lowly returns of one-month Treasury bills.
Bessembinder's research shows that just 4% of all publicly traded stocks account for all the net wealth earned by stock market investors since 1926. Just 30 stocks account for 30% of the wealth and 50 stocks account for 40% of the net wealth created by the stock market.
Click
here to enlarge the chart of Bessembinder's rankings which show t
he 50 companies that created the most wealth from 1926 to 2016.
On the 10th anniversary of Apple's debut of the iPhone, Apple has emerged as the leader of the pack with a total wealth creation of around $1 trillion. Other top contenders include Exxon Mobil, Microsoft, General Electric, IBM, Altria, Alphabet (Google), Amazon, Walmart and Berkshire Hathaway.
You might look at this list and conclude that you should just buy the best companies as a foolproof way to get rich.
If only it were that easy.
This list is worth studying for understanding the past. But, unfortunately, it's not a guide to the future, except for this: "In a market where most of the gains are attributable to a few big winners that are hard to identify in advance," Professor Bessembinder said, "it makes a lot of sense to diversify your position --- to avoid the danger of omitting the big winners from your portfolio."
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Amid near record low volatility, US stocks ended last week higher with nearly all the major indexes shown below, posting double-digit gains on the year. Positive economic news from the manufacturing and services sector (see Economic News below) as well as robust auto sales helped drive the positive sentiment.
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> ISM Manufacturing:
On Monday, October 2, the Institute for Supply Management (ISM) reported that its gauge of factory activity had risen to its highest level in September since 2004. The index has been surging this year, beating the consensus the last 4 months in a row and often by very large margins.
> ISM Services:
The ISM's services sector gauge proved even stronger when it was released Wednesday, October 4, hitting its best level in 12 years. The Non-Manufacturing ISM index registered a 59.8% growth rate, reflecting strong growth in September despite the impact on the supply chain from the recent hurricanes.
> Earnings:
Starting this week, publicly traded companies will begin to report their third quarter earnings. Most observers predict another solid quarter, though the double digit gains we've seen in the last two quarters may prove difficult. Primary reasons for the slowdown include the impacts of Hurricanes Harvey and Irma, and the fact that strongest earnings growth is coming from just two sectors, Energy and Technology.
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New Market Wealth Management offers modern investment solutions backed by extensive research and experience serving the needs of wealthy families. Through our strategic partnership with
Cliffwater LLC
, we have access to institutional-quality research, investment due diligence and asset allocation tools. We believe this level of experience and unique access to in-depth, sophisticated research are essential for success in today's complex world markets.
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