Saturday, November 21, 2015

The Importance Of Finding & Holding Winners In A Stock Portfolio

Blackstar Funds put together a study on all U.S. common stocks traded on the NYSE, AMEX and NASDAQ from 1983 to 2007. When looking at the total lifetime return for stocks over this period:

- 1 out of every 5 was a significant loser
- 39% of stocks had negative lifetime returns
- 61% of stocks had positive returns
- 1 out of every 5 was a significant winner

The average (mean) compounded annual return was negative 1.06%.

75% of the stocks in the data set collectively provided a 0% return, while the top 25% of stocks provided for all the gains. 

This emphasizes the importance of holding these crucial winners in your stock portfolio (as no one can know every winner or loser in advance due to competition and rapidly changing market dynamics, it emphasizes the importance of diversification).

I'll note this data set starts and the bottom and concludes at the top of one of the greatest bull market runs in history (1983 to 2007). If the data set were to be extended into early 2009 the results would be far more negative.