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Wealth Creation from US Equities Since 1926

Updated: May 17, 2022

I was alerted by an article in the Evening Standard to an interesting research paper entitled Do Stocks Outperform Treasury Bills?

The author used data from the Centre for Research in Securities Prices (CRSP) to analyse performance of all listed companies in the US going back to 1926. He found that just 30 stocks (Table 1) accounted for one third of total listed equity wealth creation, 90 for half, and 1,092 (out of a total of 25,300) for all (meaning that collectively 24,208 created zero wealth). Let that sink in.

If you are wondering how 24,208 firms can create zero wealth, take a look at Chart 4. It looks like around half of the 24,208 firms created wealth, but the wealth they created in aggregate was cancelled out by the other half that destroyed wealth.

Interestingly, the top 30 company that created wealth at the fastest rate was Facebook. It created $181,243 million in 56 months, which equates to $1,232 per second. This was almost double second placed Alphabet’s speed of $678 per second. I wonder if this says something about the relative value we place on communicating with friends on the one hand and looking for stuff on the other. Another research paper perhaps?

Published in Investment Letter, August 2017

The views expressed in this communication are those of Peter Elston at the time of writing and are subject to change without notice. They do not constitute investment advice and whilst all reasonable efforts have been used to ensure the accuracy of the information contained in this communication, the reliability, completeness or accuracy of the content cannot be guaranteed. This communication provides information for professional use only and should not be relied upon by retail investors as the sole basis for investment.

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