Treasury Bills Outperform Most Stocks — Say What???

Treasury Bills Outperform Most Stocks — Say What???

January 26, 2017 $SPY, Active and Passive Investing, Macroeconomics Research, Research Insights
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Each morning we peruse a variety of research sites to see if there is anything exciting, new, and intriguing. Rarely does one find something that triggers a knee-jerk reaction like a recent paper by Hendrik Bessembinder.

The title almost FORCES you to read further:

Do Stocks Outperform Treasury Bills?

And the abstract reads like a horror film if you are an equity investor:

stock distribution study

The good professor highlights that the distribution of stock returns is driven by a small percentage of really big winners.

Of course, this finding is not new:

However, Dr. Bessembinder pulls out all the stops and conducts a lot of incredibly interesting research into the details like only an academic writer can do (their job is primarily dedicated to research!).

A few facts/findings over the 1926 to 2015 time horizon:

  • Only 47.7% of all monthly stock returns from the CRSP database (NYSE/AMEX/NASDAQ) are larger than the one-month Treasury rate.
  • 42.1% of common stock holding period returns beat the holding return on T-bills.
  • The 86 top-performing stocks — less 33bps of the entire universe — account for over half of the total wealth created.
  • …and on and on…

My favorite table is the last one, which maps out the top lifetime wealth creators in the US stock market:

top 10 wealth creators

The top 5– Exxon, Apple, GE, Microsoft, and IBM — account for over 10% of lifetime wealth on the entire stock market. The top 15 names account for 16.26% of total wealth EVER created in the US stock market.

Incredible. Dig in.


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References   [ + ]

1. Ben Carlson has a discussion on the results here



About the Author

Wesley R. Gray, Ph.D.

After serving as a Captain in the United States Marine Corps, Dr. Gray received a PhD, and was a finance professor at Drexel University. Dr. Gray’s interest in entrepreneurship and behavioral finance led him to found Alpha Architect. Dr. Gray has published three books: EMBEDDED: A Marine Corps Adviser Inside the Iraqi Army, QUANTITATIVE VALUE: A Practitioner’s Guide to Automating Intelligent Investment and Eliminating Behavioral Errors, and DIY FINANCIAL ADVISOR: A Simple Solution to Build and Protect Your Wealth. His numerous published works has been highlighted on CBNC, CNN, NPR, Motley Fool, WSJ Market Watch, CFA Institute, Institutional Investor, and CBS News. Dr. Gray earned an MBA and a PhD in finance from the University of Chicago and graduated magna cum laude with a BS from The Wharton School of the University of Pennsylvania.