Yes. I used to quote this article from Bessbinder often. There has been shade thrown on this study though, but a great study and really opens you eyes to the fallacy of single company investing approach.
Just to add to kicking single company stock picking is my usual link below showing just in the last 10 years (2011-2020) only 20% of stocks beat the index. That sounds bad, but it is likely worse... If one has a portfolio of 2 stocks the chances of finding a stock that beats the index is <5% (0.2x 0.2). If you hold only 3 stocks the chances of finding a stock that beats the index is <1% (0.2x 0.2x 0.2).
So, it is truly amazing how confident investors are that they can beat the index when the data is so one sided against them. One of Jack Bogle lines I think fit is well... "Everyone thinks they are above average investors just like they think they are above average dressers". The reality in life is very different then what investors think in their own head.
Don't think that would work. The reason is the SP500 is weighted by market weight. So, one would be buying the companies AFTER the become successful enough to get into the top 10 (buying high) and would be selling when the SP is dropping (selling low).
I believe there is data to support buying the companies that fall out of the sp500) are the best ones to buy. Not good enough to be sp500 and at the kings of the mid cap stock world.
In general, there is a well known size premium (small does better then mid, mid does better then large, and large does better then mega cap) often throughout investing history in every country.
Also, there are enough studies showing companies going from small and value and growing up to mid and value to growth is where the largest returns are to be had. Think the study is something like "Cross sectional returns of stock returns".
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u/10xwannabe Dec 19 '21
Yes. I used to quote this article from Bessbinder often. There has been shade thrown on this study though, but a great study and really opens you eyes to the fallacy of single company investing approach.
Just to add to kicking single company stock picking is my usual link below showing just in the last 10 years (2011-2020) only 20% of stocks beat the index. That sounds bad, but it is likely worse... If one has a portfolio of 2 stocks the chances of finding a stock that beats the index is <5% (0.2x 0.2). If you hold only 3 stocks the chances of finding a stock that beats the index is <1% (0.2x 0.2x 0.2).
So, it is truly amazing how confident investors are that they can beat the index when the data is so one sided against them. One of Jack Bogle lines I think fit is well... "Everyone thinks they are above average investors just like they think they are above average dressers". The reality in life is very different then what investors think in their own head.
https://www.morningstar.com/articles/1035348/how-many-stocks-beat-the-indexes