IT IS ALL ABOUT THE SUPER STOCKS!

28.07.2023 Professor Bessembinder’s latest paper on the distribution of stock markets returns continues to emphasise the primacy of “super” stocks. Below we look at how his findings relate to the UK stock market.

Professor Bessembinder has done a lot of research into the distribution of stock market returns. He has consistently found that a small proportion of the stock market universe, what we refer to as “super” stocks, is responsible for most of the return of the overall stock market. For example, his most recent study between 1990 and 2020 finds that, at a global level, the top 2.4% of firms were responsible for the entire wealth creation of the global stock market. In contrast many stocks tended to perform poorly with a lot generating negative returns over long sample periods.

His findings for the UK market are consistent with the picture painted at a global level. From a sample of over 4000 quoted firms, between 1900 and 2020, he found that the average total return (capital return plus dividends) was 215%. However, the median return (middle stock in the sample) over the same period was -27%. In fact, just 43% of the stocks in the sample had a return of greater than zero and only 26% beat the average return of the whole sample.

The above analysis emphasises the powerful effect that even holding a few “super” stocks can have on portfolio performance.  When constructing portfolios for our clients we aim to identify these “super” stocks by looking for companies which have exposure to growth markets, barriers to entry, a clear strategy and a strong management team. We then aim to hold them over a number of years.

For information only. Investors should seek professional advice for their own circumstances before making an investment.

Categorised in: Uncategorised

This post was written by Robin