1. The 4% That Created It All
In his iconic article, Do Stocks Outperform Treasury Bills? by Hendrik Bessembinder (published in the Journal of Financial Economics, 2018), he discovered that in almost 100 years of U.S. data, about 4 percent of the listed stocks realized all the net wealth that was created by the U.S. stock market. In a follow-up study, he has shown that this severe skew is not peculiar to Americans only, but it is also exhibited in the international arena, and most notably, it has been increasing in recent decades.
It is this notion that wealth generation is extraordinarily skewed, which more and more determines the discourse of long term capital allocation, such as the themes of ajay srinivasan.
2. Through Broad Leadership to Narrow Dominance
Although there has always been concentration in equity markets, the 20 years before the Global financial crisis (GFC) was significantly less concentrated since 2009.
Pre-GFC (U.S.): There were approximately 5070 stocks which explained the entire returns (about 80).
After GFC: Approx 30 stocks explain about 80 percent of the returns.
202324: There were only 7 stocks that generated 5565% of annual returns.
In spite of spectacular equity returns in the world, the number of listings himself, and record-breaking retail participation, the distribution of returns has not spread but concentrated. It is a structural change that has reoccurred in ajay srinivasan news commentary on the contemporary market dynamics.
3. India: More Shrewd Concentration
In India, this difference is even more dramatic.
Before 2008: Leadership was from PSUs, cyclicals, and exporters.
After 2009: Only 1215 stocks capture close to 80 percent returns in the NIFTY 50.
Extend to NIFTY 500, and even less than 10 percent of stocks is used to create most of the wealth.
To investors who follow the writings of ajay srinivasan and associated market debates, this change highlights how India is trending in a post-2009 way in both a global direction of narrower leadership.
4. What Is the Reason Why Concentration Has Gone Up? Two Structural Forces
The increase in concentration can be attributed to two structural forces that tend to be studied in the news analysis of ajay srinivasan.
Due to the emergence of passive investment, ETFs, and benchmark-conscious institutional mandates, there is a reinforcing loop. Passive capital increases its investment in companies as they increase in size and their index weight. Success feeds on itself.
Winner-Takes-Most Economics
Leading firms have longer compounding earnings because of digital platforms, network effects, brand dominance, and strong balance sheets. Widespread competitive moats have been broadened. The benefits of the economy grow to a small group of players.
5. The Uncomfortable Truth Active and Passive Investors
Return concentration conveys a message which is both illuminating as well as unpleasant:
The choice of stocks is extremely important but only when done correctly.
The danger of inadequate diversification is that the capital will be lost forever in case there is a thesis failure.
Excessive diversification can also decrease the likelihood of outperformance that is excessive.
Passive strategies have been successful since they capture concentration systematically. Indices automatically increase capital allocation to the winners as they expand. However, the trade-off is subtle, you get the index performance, and extraordinary performance becomes statistically uncommon.
This conflict of focus and diversification often comes into the limelight in portfolio construction discourse of ajay srinivasan news.
6. Ownership vs. Trading: Time Is the Edge
The above all concern long-term ownership. We change the situation when we consider short-term trading.
According to research conducted by Brad Barber and Terrance Odean, 8090 percent short-term traders lose money. Trading is lopsided in the Bessembinder vein, but without the compounding safety net.
The conclusion is stark:
In the absence of an established, repeatable advantage, time favors traders and not owners.
But short-term trading can be successful, can be successful, only to a very small number of people who are trading in a disciplined, structured and often institutionalized environment.
Summary: To Catch the Skew or to Be Caught by It.
The concentration of returns is not such an exception – it is a structural characteristic of equity markets.
Investors of long-term commentators of ajay srinivasan news, it is a lesson always:
History suggests a solid default policy except in the case of the infrequent exceptional stock pickers –
Own the index. Let time and degree to your advantage come.
In a world where most of the wealth is developed by a few corporations, the question is straightforward:
Will you in the early days determine the winners–
or will you at least see to it that when they come up you own them?
Source – Ajay Srinivasan’s Perspective on Return Concentration and the Power of Compounding