Thursday, December 8, 2011

Diary: Just One Thing

I'm taking a squint at John Mauldin's book "Just One Thing" on amazon. I'm looking through the freebie stuff, I don't know whether I'll buy it. There's so many books I'm interested in that I don't know which one to get next. On page 162, it notes:
I published a short study in which I looked back over the last eighty years and asked the question, "How often does the number-one ranked company in market capitalization outperform the average stock of the next one year, three years, five years, and ten years?" The simple answer seems to be that on average, over time, about 80 percent of the time, the largest-capitalization company underperforms over the next ten years ... by 40 to 50 percentage ponts over the next ten years.
This comment chimes well with what I read from Peter Lynch: that by the time a company makes it into the top tier, it's half-way puffed out. Should I get the book - what do you reckon?

The top market cap stock in the S&P500 is XOM (Exxon Mobil), for the Footise, it's HSBA (HSBC Holidings).

1 comment:

John McElligott said...

The size issue has had a wonderful take on it by a firn cakked Resarch Affiliates 0 not sure if you are familiar with them. Anyhow, the rank indices on the basis of fundamental factors such as size of revenue, profit, book value or dividends as opposed to market cap. All of their fundamental indices have outperformed the S&P500 since 1964.

The idea is that investing in size of valuation is poor as it leads to overpaying for assets. Far better to invest on ranks of fundamentals as opposed to valuation per se. I am not a passive investor (although I do see its merits). If I was eveer to onvest in an index fund, it would more than likely be along the lines of the indices outlined by Research Affiliates.

CHeck out