Mebane Faber opens The Capitalism Distribution: Fat Tails in Motion with three questions:
- What percentage of stocks beat their benchmark index over their lifetime?
- What percentage of stocks have a negative return over their lifetime?
- What percentage of stocks lose essentially all of their value?
Try to answer those three questions before reading the answers from Eric Crittenden and Cole Wilcox of BlackStar Funds:
- What percentage of stocks beat their benchmark index over their lifetime?
64% of stocks underperformed the Russell 3000 during their lifetime.
(Most stocks can’t keep up with a diversified index.) - What percentage of stocks have a negative return over their lifetime?
39% of stocks had a negative lifetime total return.
(2 out of every 5 stocks are money losing investments.) - What percentage of stocks lose essentially all of their value?
18.5% of stocks lost at least 75% of their value.
(Nearly 1 out of every 5 stocks is a really bad investment.)
The flip side should be clear:
A small minority of stocks significantly outperformed their peers.
(Capitalism yields a minority of big winners that all have something in common.)
