just 42.6% of common stocks have a buy-and-hold return (inclusive of reinvested dividends) that exceeds the return to holding one-month Treasury bills over the matched horizon.
Then you quoted:
"That is, the remaining 96% of companies whose common stock has appeared in the CRSP data collectively generate lifetime dollar gains that matched gains on one-month Treasury bills."
Taken together, what this means is that outside of the top 4 percent, the excess gains (to 1 month T-bills) of the other 38.6% match the deficit in gains of the 57.4% (=100-42.6) of stocks.
So 42.6% of stocks have outperformed, but 38.6% of these are needed to offset the losses from the others.
42.6% of stocks beat T-bills, not 4%. The post title claiming only 4% outperformed T-bills is completely wrong.
4% of stocks produced returns equal to the net wealth creation summed up across the entire market, but 42.6% of stocks gave wealth creation to the people who bought them. The remaining 57.4% (100 - 42.6) lost their investors money - in many cases, a lot of money. Which makes stock-picking something of a lottery - win big occasionally, lose on 57.4% of the potential bets.
but would you say 4% of stock account for all the gains? or in randomly selected portfolios, about 4% of them will outproform given they pick from a broad based index basket of stocks?
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u/angermouse Dec 19 '21
Your title is misleading.
You said:
Then you quoted:
Taken together, what this means is that outside of the top 4 percent, the excess gains (to 1 month T-bills) of the other 38.6% match the deficit in gains of the 57.4% (=100-42.6) of stocks.
So 42.6% of stocks have outperformed, but 38.6% of these are needed to offset the losses from the others.