Author Topic: Only 4% of stocks account for all the wealth created since 1926 !  (Read 3934 times)

powskier

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Only 4% of stocks account for all the wealth created since 1926 !
« on: September 30, 2017, 12:32:21 AM »
Interesting article from Barry Ritholz.  To be clear Barry is a level headed guy who makes a living at investing but clearly points out that most people should index. Some thought provoking data in here.
The merits of exclusive vs inclusive investing, etc.

https://www.bloomberg.com/view/articles/2017-09-26/so-few-market-winners-so-much-dead-weight
« Last Edit: September 30, 2017, 01:01:23 AM by powskier »

RWD

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Re: Only 4% of stocks account for all the wealth created since 1926 !
« Reply #1 on: September 30, 2017, 11:46:47 AM »
It appears that the net wealth creation statistic here is based on total dollar amount and not percentage gains. Which means there is a lot of recency bias due to inflation and total market size.

If I'm understanding it right (and there's a good chance I'm not), it means that a company stock worth $1 billion that increased by 10% would be considered as contributing the same to investor net worth creation as a company stock worth $10 million that then increased 1000%.

DavidAnnArbor

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Re: Only 4% of stocks account for all the wealth created since 1926 !
« Reply #2 on: September 30, 2017, 05:38:38 PM »
A great article that puts into perspective the benefit of index investing over any kind of active management.

smallstache

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Re: Only 4% of stocks account for all the wealth created since 1926 !
« Reply #3 on: September 30, 2017, 08:43:29 PM »
This is a shitty article that proves nothing.  As mentioned earlier, recency bias is rampant. The methodology appears to ignore the impact of dividends, which historically comprised 50% of investor returns.  Also, the article seems to argue that companies that are no longer public are worth zero.  Yes, some went bankrupt, but many were bought out and the shareholders received stock in other companies or cash which they could reinvest in other companies.

talltexan

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Re: Only 4% of stocks account for all the wealth created since 1926 !
« Reply #4 on: October 02, 2017, 11:22:46 AM »
I understand the point about the recency bias, but not about the dividends. If you re-invest your dividends (like most people say to do), and the company fails, it goes to zero anyway.

neil

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Re: Only 4% of stocks account for all the wealth created since 1926 !
« Reply #5 on: October 02, 2017, 12:24:05 PM »
GM was a great investment.  I don't see many people who bought it in 1926 complaining.  Tesla compounds on their success by improving their products - i.e. how capitalism works.

This is the funny thing about buy-and-hold forever.  Eventually, all of today's companies will go to zero, if you look forward far enough.  But the economic value they produce today allows the lot of us to do things today (eat food, build other businesses, whatever) and the future companies benefit on that.  Owning a blend of companies should get you a continuous mix and, barring a mass extinction of companies, you'll be fine.  (And in the event of that, we'd all be in the same boat anyway.)

I guess that was the point, but the information is not actionable and the wording is terrible.

smallstache

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Re: Only 4% of stocks account for all the wealth created since 1926 !
« Reply #6 on: October 03, 2017, 06:55:36 AM »
I understand the point about the recency bias, but not about the dividends. If you re-invest your dividends (like most people say to do), and the company fails, it goes to zero anyway.

Berkshire Hathaway purchased Coca-Cola stock in 1988 for about $2 a share. 30 years later, Coca Cola pays almost that much per year in dividends ($1.48).

People could stop drinking sugary drinks or the government step in a regulate the company to the point that it stops paying a dividend and ceases operation. At the end of 2017, KO is worth zero and the article deems it a failure in the "96%" of failed companies. Yet, the Berkshire's managers will still be counting KO dividend dollars long after Buffett croaks.

talltexan

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Re: Only 4% of stocks account for all the wealth created since 1926 !
« Reply #7 on: October 04, 2017, 09:49:36 AM »
So was KO the one stock out of 25?

marty998

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Re: Only 4% of stocks account for all the wealth created since 1926 !
« Reply #8 on: October 04, 2017, 02:43:37 PM »
GM was a great investment.  I don't see many people who bought it in 1926 complaining.

Troll of me to point out this is because they're all dead.

smallstache

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Re: Only 4% of stocks account for all the wealth created since 1926 !
« Reply #9 on: October 04, 2017, 08:06:06 PM »
So was KO the one stock out of 25?

Maybe, but tomorrow it could be one of the other 24.  My point is the dividends received more than paid for itself.

talltexan

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Re: Only 4% of stocks account for all the wealth created since 1926 !
« Reply #10 on: October 09, 2017, 01:13:01 PM »
GM was a great investment.  I don't see many people who bought it in 1926 complaining.

Troll of me to point out this is because they're all dead.

And, yes, anyone who'd maintained that stake from 1926-2008 would have been wiped out by GM's bankruptcy. Hope they didn't re-invest dividends that whole time!

Car Jack

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Re: Only 4% of stocks account for all the wealth created since 1926 !
« Reply #11 on: October 10, 2017, 11:09:27 AM »
GM was a great investment.  I don't see many people who bought it in 1926 complaining.

Troll of me to point out this is because they're all dead.

They'd have to have died before 2008, when the stock price went to zero.

Eric

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Re: Only 4% of stocks account for all the wealth created since 1926 !
« Reply #12 on: October 10, 2017, 01:07:48 PM »
GM was a great investment.  I don't see many people who bought it in 1926 complaining.

Troll of me to point out this is because they're all dead.

They'd have to have died before 2008, when the stock price went to zero.

Unless they were buying GM at birth, they would be 100+ years old, so that's a good bet.

smallstache

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Re: Only 4% of stocks account for all the wealth created since 1926 !
« Reply #13 on: October 12, 2017, 01:18:18 PM »
GM was a great investment.  I don't see many people who bought it in 1926 complaining.

Troll of me to point out this is because they're all dead.

And, yes, anyone who'd maintained that stake from 1926-2008 would have been wiped out by GM's bankruptcy. Hope they didn't re-invest dividends that whole time!

Along the way, they received shares of Electronic Data Systems (which turned into shares of HP and HP Enterprises), Delphi Automotive, Raytheon, DirecTV (which turned into cash from AT&T), and other spinoffs.

talltexan

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Re: Only 4% of stocks account for all the wealth created since 1926 !
« Reply #14 on: October 13, 2017, 07:03:34 AM »
Excellent points about the spin-off companies. I wonder back in the 1920's how the auto market was structured: were there just the big-3, or were there literally dozens of car-makers? If the latter, would it have been obvious that the big-3 would eventually emerge?

RWD

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Re: Only 4% of stocks account for all the wealth created since 1926 !
« Reply #15 on: October 13, 2017, 07:56:57 AM »
Excellent points about the spin-off companies. I wonder back in the 1920's how the auto market was structured: were there just the big-3, or were there literally dozens of car-makers? If the latter, would it have been obvious that the big-3 would eventually emerge?

In the 1920s Ford and GM were clearly ahead of the pack, but Dodge/Chrysler would not have been as obvious. Hudson and Willys were each competitive, even out-producing Dodge in the late 1920s. Other prominent manufacturers included Studebaker, Durant, and Nash, all of which had at least a couple years in the 1920s where they built over 100k cars.
https://en.wikipedia.org/wiki/U.S._Automobile_Production_Figures

Edit: Dodge wasn't part of Chrysler until 1928. Chrysler really didn't become a powerhouse until the 1930s with the Plymouth brand.
« Last Edit: October 13, 2017, 08:01:34 AM by RWD »