> We study long-run shareholder outcomes for over 64,000 global common stocks during the January 1990 to December 2020 period. We document that the majority, 55.2% of U.S. stocks and 57.4% of non-U.S. stocks, underperform one-month U.S. Treasury bills in terms of compound returns over the full sample. Focusing on aggregate shareholder outcomes, we find that the top-performing 2.4% of firms account for all of the $US 75.7 trillion in net global stock market wealth creation from 1990 to December 2020. Outside the US, 1.41% of firms account for the $US 30.7 trillion in net wealth creation.
> Four out of every seven common stocks that have appeared in the CRSP database since 1926 have lifetime buy-and-hold returns less than one-month Treasuries. When stated in terms of lifetime dollar wealth creation, the best-performing four percent of listed companies explain the net gain for the entire U.S. stock market since 1926, as other stocks collectively matched Treasury bills. These results highlight the important role of positive skewness in the distribution of individual stock returns, attributable both to skewness in monthly returns and to the effects of compounding. The results help to explain why poorly-diversified active strategies most often underperform market averages.
Further, over ten years, most individual stocks under perform a market index (even more so if stock was initially a top performer):
> […] Since 1926, the median ten-year return on individual U.S. stocks relative to the broad equity market is –7.9%, underperforming by 0.82% per year. For stocks that have been among the top 20% performers over the previous five years, the median ten-year market-adjusted return falls to –17.8%, underperforming by 1.94% per year. Since the end of World War II, the median ten-year market-adjusted return of recent winners has been negative for 93% of the time. The case for diversifying concentrated positions in individual stocks, particularly in recent market winners, is even stronger than most investors realize.
So what? One person isn't "most people". It's quite possible that one person has certain insights that the market generally doesn't have or isn't accounting for. I've made 20x what an index fund would have returned since 2002 because I've been weighting all of my investments heavily in tech, because I've believed in the growth potential for a long time.
This sort of logic reminds me how people like to say things like "Everyone thinks they're an above average driver". Yes, it might be true that many 80% of people think they're above the median skill, but that doesn't mean there aren't actual above average drivers out there.
> Yes, it might be true that many 80% of people think they're above the median skill, but that doesn't mean there aren't actual above average drivers out there.
An observation form Nick Maggiulli:
> Instead, I am going to argue that you shouldn’t pick stocks because of the existential dilemma of doing so. The existential dilemma is simple—how do you know if you are good at picking individual stocks? In most domains, the amount of time it takes to judge whether someone has skill in that domain is relatively short.
> For example, any competent basketball coach could tell you whether someone was skilled at shooting within the course of 10 minutes. Yes, it’s possible to get lucky and make a bunch of shots early on, but eventually they will trend toward their actual shooting percentage. The same is true in a technical field like computer programming. Within a short period of time, a good programmer would be able to tell if someone doesn’t know what they are talking about.*
[…]
> But, what about stock picking? How long would it take to determine if someone is a good stock picker?
> An hour? A week? A year?
> Try multiple years, and even then you still may not know for sure. The issue is that causality is harder to determine with stock picking than with other domains. When you shoot a basketball or write a computer program, the result comes immediately* after the action. The ball goes in the hoop or it doesn’t. The program runs correctly or it doesn’t.* But, with stock picking, you make a decision now and have to wait for it to pay off. The feedback loop can take years.
> And the payoff you do eventually get has to be compared to the payoff of buying an index fund like the S&P 500. So, even if you make money on absolute terms, you can still lose money on relative terms.
> More importantly though, the result that you get from that decision may have nothing to do with why you made it in the first place. For example, imagine you bought GameStop in late 2020 because you believed that the price would increase as a result of the company improving its operations. Well, 2021 comes along and the price of GameStop surges due to the wallstreetbets inspired short squeeze. You received a positive result that had nothing to do with your original thesis.
[…]
> This is the existential crisis that I am talking about. Why would you want to play a game (or make a career) out of something that you can’t prove that you are good at? If you are doing it for fun, that’s fine. Take a small portion of your money and have at it. But, for those that aren’t doing it for fun, why spend so much time on something where your skill is so hard to measure?
[…]
> I know I won’t convince every stock picker to change their ways, and that’s a good thing. We need people to keep analyzing companies and deploying their capital accordingly. However, if you are on the fence about it, this is your wake up call. Don’t keep playing a game with so much luck involved. Life already has enough luck as it is.
> Are we in a race to see who can pop the bubble first?
Just because it's a bubble doesn't mean money can't be made.
If you're worried it and the risk involved, perhaps go from 100% equities (100/0) to an allocation that has some bonds (90/10, 80/20, etc). Rebalance as things get out of whack.
There are products that do this rebalancing for you: target-date funds that increase bond allocation as you get closer to retirement, or fixed-allocation all-in-one funds (VASGX, VSMGX; CA: VEQT/XEQT).
Having some bonds and rebalancing would have saved US domestic investors in the so-called Lost Decade of the '00s:
> If we are still likely to see rising interest rates, bonds feel like a bad idea.
Bonds are a bad idea until they're not… at which point it may be too late to buy them.
And you (generally) don't buy bonds for returns (at least not since the '80s). If you can sleep at night with the gyrations of The Market™ then go ahead and skip them, but also keep your timelines in mind (are you hoping to retire in 5-10 years, or make some other use of the money (downpayment)?).
> CRSP indexes were also recently changed to better accommodate fast entry. New IPOs are eligible for CRSP's suite of indexes after five trading days, provided they pass the index's eligibility and investability screens. Previously, these screens included having at least 10% of shares qualifying as freely tradeable (known as float shares outstanding, or FSO). However, in April the methodology changed to allow stocks with either 10% FSO or approximately $3.3 billion in float-adjusted market capitalization to be eligible for index inclusion. The weighting of stocks in CRSP indexes is also based on free float, which should help address the investability challenges associated with thinly traded stocks.
> This has been a thing in the CRSP indexes (ie. the benchmark for Vanguard’s VTI) forever.
CRSP has recently changed their rules:
> CRSP indexes were also recently changed to better accommodate fast entry. New IPOs are eligible for CRSP's suite of indexes after five trading days, provided they pass the index's eligibility and investability screens. Previously, these screens included having at least 10% of shares qualifying as freely tradeable (known as float shares outstanding, or FSO). However, in April the methodology changed to allow stocks with either 10% FSO or approximately $3.3 billion in float-adjusted market capitalization to be eligible for index inclusion. The weighting of stocks in CRSP indexes is also based on free float, which should help address the investability challenges associated with thinly traded stocks.
> Stocks would become eligible for the index after six months rather than 12 months. The requirement to have a minimum Investable Weight Factor of 0.10 (roughly at least 10% of shares publicly floated) would be dropped. Companies would not be required to demonstrate profitability.
> Still, S&P Dow Jones reminds market participants that the proposed changes would apply only to index eligibility. The actual inclusion of new constituents remains entirely at the discretion of the index committee.
> The most recent change was the NASDAQ adopting the "fast change rule" which allows newly IPO'd companies to be listed in the index after only 15 days of trading.
Official justification, and other changes besides timeframe, e.g.:
> First, eligibility and company size. As multi‑class share structures have become more common, we now consider both listed and unlisted shares when determining eligibility and ranking. This allows the index to reflect a company's full economic size, while index weighting remains based solely on listed shares. This change affects who qualifies for inclusion, not how constituents are weighted.
> A new method to calculate the market capitalization of companies to determine their eligibility for inclusion in the index. It involves adding listed stock and unlisted shares that are part of different share classes. Scrapping a rule that requires companies to float a minimum 10% of their shares. Companies with a low float will receive a lower weighting on the index. […]
I know scientists who want to move back home but can't because where they are from doesn't have funding for the research they do. Even with the uncertain federal funding it's still more viable than many places around the world.
Any country that doesn't openly say that it will bar funding to grant applications that include any word from a given list of words. Which, of the countries on this planet, is quite a few.
Interestingly, if the US stopped spending you’d need the top 17 remaining countries to double their spending to absorb the American science industry. Doubling is a tall order and seventeen is a large number. Most likely fewer scientists will find employment in government funded academia if this came to be.
Can the link type be toggled between Ethernet and Infiniband? (Don't think I've ever heard of a laptop with IB.)
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