Even more skewed in the global resultsIn his Sydney presentation, Bessembinder also reported on his updated work, which now covers 64,000 global companies from 43 countries over 30 years. To show the US results were not a fluke, the global stock market returns were even more skewed.
Of the US$76 trillion shareholder wealth created by 63,785 firms from 1990 to 2020:
The top 5 firms (0.008%) accounted for 10.3%
The top 159 firms (0.25%) accounted for 50%
The top 1,526 firms (2.39%) accounted for 100%
The other 62,259 firms collectively matched US Treasury Bills.
In his research, 25,441 (39.9%) companies did generate (modest) positive wealth which just offset the wealth destruction of 36,818 (57.7%) companies.
It’s a difficult number to comprehend. Only 2.4% of global listed companies account for all the market performance above a short-term government security.
What factors caused the outperformance?Bessembinder then started looking for the source of the outperformance, especially the growth in fundamental measures. Based on compound returns in US stocks from 1970 to 2020, he found five fundamental variables which he says explain about 29% of the variation in multi-decade stock returns.
The strongest indicator was income growth, while asset and sales growth were relatively unimportant. He also tested the ‘decade indicator’ to see if there was something about particular decades which produced strong results, and he compared the income to assets ratio.
Only 2.4% of companies deliver all net shareholder wealth
