“Do Stocks Outperform Treasury Bills?”

Only 4% of the stocks in the S&P 500 account for the index’s much higher return than Treasury Bills. If you don’t happen to own this 4%, you’re doomed to underperformance, like 95% of professional stock pickers.

Thus the wisdom in buying a low-fee index fund and “minimizing the skim”, by holding long term.

You can download the paper for free from this link

intercst

7 Likes

Interesting.

The single most frequent outcome (when returns are rounded to the nearest 5%) observed for individual common stocks over their full lifetimes is a loss of 100%.

And:

The fact that the overall stock market generates long-term returns large enough to be referred to as a puzzle, while the majority of individual stocks fail to even match Treasury bills, can be attributed to the fact that the distribution of individual stock returns is positively skewed. Simply put, large positive returns to a few stocks offset the modest or negative returns to more typical stocks.

Seems that the markets have, for a very long time, been heavily skewed to a handful of high performers. And those high performers change every few years. Much has been made about the Magnificent 7 of late, and FANG before that, as being signs of a market with structural issues. I now wonder if that is not true, that markets are frequently like this.

3 Likes

Do you think Buffet has been in all those outperformers? Yet he still outperforms over the long term. Something to think about.

Andy

1 Like

Only a portion of Berkshire’s assets are in stocks, a lot of it is in entire companies that they’ve purchased and operate. And perhaps most important of all, a lot of the capital they use comes from insurance float. That is a lot different than having to use your own capital for 100% of your investments.

4 Likes

But not when he first started out, we all know what he has done from the beginning and what he is doing now. (Yes I know about Berkshire) There are many books written on how he invests and anyone can learn, it’s just if they choose to put in the time. There are many ways for to beat the market and you just need to find someone that has been doing it a number of years and read everything written on them on how to do it. It isn’t that it can’t be done, the hard part is putting in the effort and not giving up during adversity.

Andy

It is not adversity

²²22222222 0

In recent years, Buffett has been able to leverage his reputation to obtain sweetheart deals for BRK not available to the average investor.

He also benefits from the fact that BRK can be an effective Estate Planning strategy for large, family owned businesses that want to keep the family running it. That’s what allows Buffett to buy all these well-run family businesses.

intercst

4 Likes

Buffett has said that strategies he employed so successfully in the early years won’t work today because there are too many well-funded Private Equity firms trying to do the same thing. It’s a lot harder to find “a good stock at a low price”.

But as I mentioned in a earlier post, BRK does have a leg up in acquiring well-managed, family-owned firms looking for an Estate Planning strategy.

intercst

1 Like

He has been investing for over 50 years. When he started he didn’t have any reputation, nor did he have leverage.

Andy

1 Like

Buffett when he first started investing Did the Graham way of investing, then he ran into Munger and did the Munger way of investing. So that seems to still work. Find great companies at a good price seems to be his motto now.

Andy

That is not true. He immediately gained a reputation on Wall Street. Reading about him, one party hostess described the young Buffett as Jesus and the disciples. Buffett sat on a chair while the older Wall Street brokers sat Indian-style on the floor. Quite literally. He regaled them with his stories.

BTW it is closer to 80 years.

He was telling stories like this to his older Wall Street peers in the 1950s.

Remember my saying Japan and the UK ride into demand-side economics with the US?

Also, Buffett is not interested in using leverage.

1 Like