Treasury Bills Outperform Most Stocks — Say What???
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:
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:
- Our study on the distribution of stock returns
- The Longboard study on the distribution, “The Capitalism Distribution” (1)
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:
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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Definitions of common statistics used in our analysis are available here (towards the bottom)
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|1.||↑||Ben Carlson has a discussion on the results here|