Doug Blaylock, CFP, RHU, RRC, CEA’s Post

Wall Street Journal columnists threw 12 darts at stock-market listings a year ago. The biggest takeaway from all of it was that, while there were a few other winners, a single stock was responsible for ALL of their net gains. That hews to reality. A long-term study of U.S. stock returns by Hendrik Bessembinder shows that half of all excess returns came from just 83 companies. Most stocks underperform risk-free investments, which is why diversified portfolios not designed to shoot the lights out are more prudent. https://lnkd.in/gZ6UV2yz

Wall Street Journal columnists threw 12 darts at stock-market listings a year ago. The biggest takeaway from all of it was that, while there were a few other winners, a single stock was responsible for ALL of their net gains. That hews to reality. A long-term study of U.S. stock returns by Hendrik Bessembinder shows that half of all excess returns came from just 83 companies. Most stocks underperform risk-free investments, which is why diversified portfolios not designed to shoot the lights out are more prudent. https://lnkd.in/gB9ejsHj

Wall Street Journal columnists threw 12 darts at stock-market listings a year ago. The biggest takeaway from all of it was that, while there were a few other winners, a single stock was responsible for ALL of their net gains. That hews to reality. A long-term study of U.S. stock returns by Hendrik Bessembinder shows that half of all excess returns came from just 83 companies. Most stocks underperform risk-free investments, which is why diversified portfolios not designed to shoot the lights out are more prudent. https://lnkd.in/gErBwMFG

This year we have witnessed back-to-back #all_time_highs not only to US indices, but to #corporate share #buybacks. This can significantly impact stock prices, as by reducing the number of shares in circulation and boosting demand, buybacks often drive prices #higher and improve earnings per share. They signal market confidence but can also raise concerns about overvaluation and long-term sustainability. While this strategy can increase short-term investor returns, it is definitely one of the reasons why stock market is surging right now !!

Gap Up A gap-up is when an index or stock's opening price is much higher than its closing price from the previous day. The sudden increase creates a ‘gap’ in the stock chart. Gap-up happens when there is positive news or a good earning report in stocks, etc. Some companies might announce their financial results after markets are closed. This can casue sudden shift in investor sentiment. On the other hand, a gap-down happens when the opening price is much lower than the previous day’s closing price. This usually indicates a negative sentiment, unfavourable news, and weak earnings.

CONCENTRATION The Chart of the Day shows the concentration of the US market over 100 years in two approaches. The Y-axis on the left shows the market capitalization of the largest stock compared to the 75th percentile (i.e. how many times the stock market value of the top company is that of the company that is worth more than 74% of the market) than and the one on the right shows the weight of the top 10 stocks In the S&P500 stock index (the latter only from the '80s). Well, one thing can be said for sure: the concentration is brutal. Of course, this does not mean a crash is coming soon, but it does not hurt to know about it for context. #us #stock #market #concentration

Is the stock in your portfolio overvalued?🤔 The Price to Book Ratio helps understand the market’s perception of the stock and its book value. Can you guess the name of some companies that are overvalued in India’s stock markets? Let us know in the comments and follow Finshots for more!

Should you be worried about last weeks sell off? Here is an interesting fact about market drawdowns: Since 1928, the S&P 500 has experienced a decline of 5% or more in 94% of years. A correction of 10% or more happened in 61 out of the last 96 years. A larger drawdown of 15%+ was seen in 40% of the years in the 1928-2023 timeframe. Finally, a bear market with a 20% drop or more took place in 25 out of the last 96 years. Stock market pullbacks are normal and are part of investing.

The most common outcome from buying a single stock is that you lose all your money. Read that again. Many investors know that the long-term average return of the stock market is around 10%. That tells the "what" of stock returns. But what about the "how?" How are those ~10% returns generated over time? Averages tell you little, but the MODE (the most common data point) tells you everything. Decades of research reveal the mode stock return to be a cool -100%. Read more about what that means for portfolio design in Rubin Miller, CFA's latest (awesome) blog post 😊: https://lnkd.in/gy5zseA8

The small-cap breakout over the past week is a perfect example of why you remain diversified beyond the S&P 500. Yes, the S&P is generally where the plurality of your stock portfolio should be concentrated, but it is also not representative of the entire stock market. You want to own a broad, diversified mix of stocks, not just the big guys.