Getting the total return of the market depends on your portfolio including a representative sampling of that "best-performing four percent."
These items probably fall into areas of debatability. Skewness along the lines of the 4% factoid most likely does not tend to hold for short investment timelines. There are some indications about individual stock skewness increasing with longer time horizons in the Bessembinder papers, yet the graphic from Petajisto communicates the general idea about skewness tending to historically relate with investment horizon better than anything else I've ran across. I think the 500 stock equal weight funds, like RSP and GSEW, typically rebalance quarterly, so their holdings are not following the multi-decade stock situations from the Bessembinder papers. As noted in the following, recent top performers can potentially turn into underperformers. History suggests a market weight strategy may or may not compare favorably to a rebalanced equal weight investment into 500 stocks, so it's generally unclear which might serve as a superior strategy across various timeframes. Of course the methodology from Bessembinder, and others, basically does not follow either of those investment strategies.2) it makes no logical sense to put, say, $20 "weight" onto each of 500 stocks and ZERO weight onto each of 3,200 stocks.
https://awealthofcommonsense.com/2023/1 ... ck-market/
Statistics: Posted by alluringreality — Thu May 09, 2024 12:04 am — Replies 64 — Views 5010