Distribution of the profitability of shares on the stock market

It is very common that when analysts or the media talk about the performance of the stock market over a period of time, they only do so on the performance of the main stock indices, such as the S & P500 in the United States, the EuroStoxx50 in Europe or the Ibex35 in Spain. However, indices are made up of a large number of companies that may behave very differently, which is what we will see in this article.

In this article I will present the results of the study "Distribution of the profitability of the shares of the US stock market between 1.983 and 2.006

Distribution of the profitability of the shares of the US stock market between 1.983 and 2.006

The study had the following results:

  • 18,5% of the shares fell more than 75%
  • 39% of the shares had negative total returns
  • 64% of stocks underperformed the Russell 3.000 index
  • 20% of the shares had a return of more than 300%
  • 14% of the shares had an average annualized return of over 20%
  • 6,1% of stocks outperformed the Russell 3.000 Index by more than 500%

What conclusion can we draw from this study?

The study makes it clear that there is a big difference in profitability between publicly traded companies. Financial markets of these characteristics are a favorable place for followers of value investing, since the selection of shares takes on a special relevance.

What should investors do? Investors should focus on learning to separate the wheat from the chaff when investing. I know that it is not a simple task, but it is not impossible either.

How can we do it? Following in the footsteps of investors who have succeeded, such as Benjamin Graham, Warren Buffett, Peter Lynch, Phillip Fisher, David Einhorn and company. In other words, following the teachings of the value investing.