Rekenthaler Report

The Biggest Companies Have Deserved to Be Best

John Rekenthaler

Two Tiers
Tuesday's column detailed how, in recent years, blue chips have dominated. An investor in August 2013 who sorted all publicly traded firms by their market caps from largest to smallest, selected the top 1%, invested equally in each of those 67 stocks, and then held that portfolio would have gained an annualized 13% over the next five years. In contrast, someone who employed the same tactic for the remaining 99% wouldn't have made a penny.

The latter finding isn't completely surprising. As I once wrote, most stocks stink--not just for five years, but forever. Half of all issues contained in the Center for Research in Security Prices' U.S. stock-market database, which dates to 1926, have posted negative returns for their lifetimes. Thus, the tactic of investing equally across the market's smaller 99% only succeeds if the winners are so huge as to overcome the majority's drag. Sometimes, that occurs--but not in this case, for the hypothetical buy-and-hold August 2013 investor.

John Rekenthaler does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.