Page 77 - Psychology of Money - Timeless Lessons on Wealth, Greed, and Happiness-Harriman House Limited (2020)
P. 77
The distribution of success among large public stocks over time is not much
different than it is in venture capital.
COBACOBA
Most public companies are duds, a few do well, and a handful become
extraordinary winners that account for the majority of the stock market’s
returns.
J.P. Morgan Asset Management once published the distribution of returns for
the Russell 3000 Index—a big, broad, collection of public companies—since
1980.²¹
Forty percent of all Russell 3000 stock components lost at least 70% of their
value and never recovered over this period.
Effectively all of the index’s overall returns came from 7% of component
companies that outperformed by at least two standard deviations.
That’s the kind of thing you’d expect from venture capital. But it’s what
happened inside a boring, diversified index.
This thumping of most public companies spares no industry. More than half
of all public technology and telecom companies lose most of their value and
never recover. Even among public utilities the failure rate is more than 1 in
10:
