- Does it replicate internationally?
- Is it explained by another phenomenon such as the beta anomaly or small cap premium. Implication: large caps with high beta are already known to underperform, so this this isn't a new regularity.
This is more of a mathematical axiom than a financial effect, because you're defining "underperform/overperform" with respect to an average that contains them.
>because you're defining "underperform/overperform" with respect to an average that contains them.
Why is this true? For instance, if you're comparing the GDP growth of countries in the G7, why is it that one country (eg. US) can't consistently overperform year after year?
https://ourworldindata.org/grapher/gdp-per-capita-worldbank?...
Or if you want make it even more clear, you can construct a index consisting of two countries: a normal country (eg. US) and a basketcase (eg. DRC):
https://ourworldindata.org/grapher/gdp-per-capita-worldbank?...
This might work for the G7 case[1], but not the US vs DRC case, where it's an obvious case of sloping up vs sloping down. Granted, the case is contrived, but the original claim was that it was an "mathematical axiom", so it should still hold.
[1] though even in the G7 sample, you can find counterexamples. If you switch to "relative growth" you can clearly see that italy has lagging since the mid 2000s, with no accompanying faster-than-average growth to make up for it. If the claim is that "Historically stocks that had a good run then tended to underperform", then surely the opposite must also hold?
Most stocks suck:
> We study long-run shareholder outcomes for over 64,000 global common stocks during the January 1990 to December 2020 period. We document that the majority, 55.2% of U.S. stocks and 57.4% of non-U.S. stocks, underperform one-month U.S. Treasury bills in terms of compound returns over the full sample. Focusing on aggregate shareholder outcomes, we find that the top-performing 2.4% of firms account for all of the $US 75.7 trillion in net global stock market wealth creation from 1990 to December 2020. Outside the US, 1.41% of firms account for the $US 30.7 trillion in net wealth creation.
* https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3710251
> Four out of every seven common stocks that have appeared in the CRSP database since 1926 have lifetime buy-and-hold returns less than one-month Treasuries. When stated in terms of lifetime dollar wealth creation, the best-performing four percent of listed companies explain the net gain for the entire U.S. stock market since 1926, as other stocks collectively matched Treasury bills. These results highlight the important role of positive skewness in the distribution of individual stock returns, attributable both to skewness in monthly returns and to the effects of compounding. The results help to explain why poorly-diversified active strategies most often underperform market averages.
* https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2900447
And this certainly can have a financial effect on your finances: having the "wrong" stocks in your portfolio (i.e., most of them) and not have the "correct" ones will mean a (e.g.) comfortable retirement or not.
Every time.
I look forward to your weather report too: "It's always sunny outside until one day it starts raining. Every time."
I once ran across the comment that if you simply predict tomorrow's weather will be the same as today's you'd be correct 80% of the time. Not sure how true that is (can't find the source).
Allegedly momentum investing does pretty well:
* https://en.wikipedia.org/wiki/Momentum_investing
(I'm more of an index guy myself.)
Years ago, My daughter's science teacher said that school should teach a love of learning.
I replied 'I thought the point of school was to make productive worker units in society'
And while he explained to me why I was wrong I was thinking to myself 'great, now he thinks I'm a terrible person'
It seems I deadpan too effectively.
And Japan performed ridiculously well for over decades and then stagnated for decades after that, but it averaged out between the two periods:
> Ben Carlson: It's just a really long mean reversion. You got like 22% per year from 1970 to 1989 in Japan. Small caps in Japan did 30% per year for two decades.
> It's insane. The returns almost had to be poor after that. If you put them together, the boom with the bust, it's like almost 9% per year.
> It's kind of crazy. Over 50 years, the long-term worked. It's just that over that 20 or 30-year period, it didn't work so well.
* https://rationalreminder.ca/podcast/412 (~4m20s)
Annualized 9% per year is pretty good: the S&P 500 has average 10% since 1957 (70 years). Is there anything preventing US equities from doing the same thing: great performance from 2010 until now, and then 10+ years of stagnation starting (theoretically) tomorrow. If you look at 2000s S&P 500 you got zero returns, and the only thing that would have saved a US domestic (only) investor was having a bond allocation:
* https://www.forbes.com/sites/advisor/2010/09/13/its-not-real...
This is why diversification is important. People talk about "US stocks" doing well, but have US industrials done better than non-US industrials? US finances or energy done better than non-US? Or are "US stocks" doing better simply because tech stocks specifically have done better? Perhaps a US allocation is really a tech sector play:
* https://ofdollarsanddata.com/should-your-portfolio-be-100-us...