Our investment approach is rooted in historical data and resonates with our belief that a handful of companies, driven by visionary leaders, hold the keys to monumental wealth creation.
A comprehensive study by Professor Hendrik Bessembinder evaluated lifetime returns to every U.S. common stock traded on the New York and American stock exchanges and the Nasdaq since 1926.
The study found that the largest returns come from very few stocks overall — just 86 stocks have accounted for $16 trillion in wealth creation, half of the stock market total, over the past 90 years.
All of the wealth creation can be attributed to the thousand top-performing stocks, while the remaining 96% of stocks collectively matched one-month T-bills.
All of the wealth creation in the stock market can be attributed to the top 4% of winners.
In addition, another enlightening study between 1926 and 2022 highlighted that just 25 stocks accounted for one-third of all shareholder wealth. Therefore, 0.1% of businesses created $17.6 trillion in wealth.
Moreover, a global analysis from 1991 to 2020 of over 64,000 stocks revealed that a significant majority, both in the U.S. and internationally, underperformed one-month U.S. Treasury bills.
Yet, a small fraction, just 2.4% of these firms, accounted for the entire $75.7 trillion in global stock market wealth over these three decades.
This is great evidence that there are only a handful of businesses that we can invest in that are run by management which have unquestionable integrity and a long-term vision.
Charlie Munger said, ”The wise ones invest heavily when the world offers them that opportunity. They invest big when they have the odds. And the rest of the time, they don’t. It’s just that simple.
Founders who have a vision are often passionate about the smallest details, looking for ways to improve the customer experience, cutting costs even in good times, and investing for the future even if external pressure is being placed on them to report strong numbers now.
It is excellent to see an example of Jeff Bezos’s obsession with customer service demonstrated by this one example below.
“There are many ways to centre a business. You can be competitor-focused, you can be product-focused, you can be technology-focused, you can be business model-focused, and there are more. But in my view, obsessive customer focus is by far the most protective of day one vitality.”
We like to invest in businesses with leaders who are creative, adaptable, visionary and have enormous courage. Leaders who understand capital allocation and the importance of providing excellent customer service.
As Warren Buffett once said, “Over time, the skill with which a company’s managers allocate capital has an enormous impact on the enterprise’s value.” We believe capital allocation is by far the most important task of management and that also provides the company’s competitive edge.
We want to invest in companies that manage to allocate capital very efficiently and generate high returns on their capital.
Despite the vast investment landscape, our approach and comprehensive studies have clearly demonstrated that only a select few firms can deliver true value and exponential growth, and those are the firms worth investing in.
These rarities, often led by visionary founders, offer both sustainable returns and a competitive edge.
By concentrating our investments in such high-potential businesses, we are not only maximising returns but also minimising risks.
As the adage goes, it’s not about having all the right cards but playing a few hands right. Our commitment remains unswerving to diligently identify, invest in, and nurture these select opportunities, ensuring our stakeholders reap the optimal benefits of intelligent investing.
YFS Intelligent Wealth Fund Performance vs. IA Global
Awet Ghirmay, Head of Investment Research
If you want to learn more about this topic, please find the link here.
More information about our fund can be found here: Hargreaves Lansdown or AJ Bell
Risk warnings
The value of investments and the income derived from them may fall as well as rise. You may not get back what you invest. This communication is for general information only and is not intended to be individual advice. You are recommended to seek competent professional advice before taking any action. All statements concerning the tax treatment of products and their benefits are based on our understanding of current tax law and HM Revenue and Customs practice. Levels and bases of tax relief are subject to change. This blog is based on my own observations and opinions.
