To all--->
Another excellent (IMHO, of course) article from briefing.com:
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Daily Stock Brief by Briefing.com
Updated: 14-Dec-99
Market Returns in 1999
[BRIEFING.COM - Robert V. Green] As we near the end of the year, there will be a lot of year-end wrap-ups of the markets. Those reports, barring calamity in the next three weeks, will focus on the incredible returns this year, wrapping up five great years in the market. But the mass media reports probably won't go below the surface, because when you do, the picture changes. Here's some data on overall returns in the market so far in 1999.
The Indices
The overall indices look pretty good. Here is a table of how the major indexes have performed, both on a 52 week basis, and year-to-date.
Index 52 Week YTD Close 12-14-99
DJIA (INDU) 28.4% 21.5% 11,162.01
S&P500 (INX) 22.9% 14.2% 1,402.41
Nasdaq Composite (COMPX) 81.6% 61.8% 3571.71
Russell 2000 (IUX) 20.3% 10.8% 466.71
Closing numbers do not include after-hours trades.
The 52-week column calculates price change from December 14 1998 closing prices to December 14 1999 closing prices.
The first deduction from this data is that the last weeks of 1998 were barn burners as far as the indices were concerned. The financial world likes to measure returns on a January 1 to January 1 basis, but unless you always invest on January 1, that date doesn't always tell the whole story.
But the real thing to notice is the simply incredibly performance of the Nasdaq versus the meager return of the Russell 2000. This is the era of large cap technology stocks.
The Broader Market
Just looking at the indices doesn't tell the whole story, however.
The universe of publicly traded stocks in the United States comprises 9,346 stocks.* Of these, 985 were not in existence one year ago.
Of the 8,361 that did exist at this time last year, less than half had a positive return.
< 0 % (Lost Money) 0 % (Even) > 0 % (Made Money)
4,447 82 3,832
53.2% 1.0% 45.8%
If you are one of those holding a stock that just didn't do much this year, don't feel that puzzled when you see the media stories about how everyone is making a fortune in the market. Not everyone is.
The Distribution of Returns
But the distribution of 52 week returns is by far the most interesting piece of data we have uncovered. (Data is from close on December 13, 1998 to closing prices of December 13, 1999.)
-100 -99.9< -50< -25< -10<x 0 x <10 <25 <50 <100 100+
1 1,072 1,429 1,228 717 82 561 659 628 712 1,272
- 12.8% 17.1% 14.7% 8.6% 1.0% 6.7% 7.9% 7.5% 8.5% 15.2%
In the table above, each column shows the number of stocks in each return group. The column heading is inclusive. For example, the column labeled "<10" is all stocks with returns greater than 0, but less than or equal to 10.0%. The column labeled "-10<" includes those stocks that had returns equal to or higher than -10%, but less than 0%.
This is not your ordinary bell-shaped Gaussian curve, which is what random distribution of returns would give.
The most striking number, to us, is the number of stocks with greater than 25% loses. An astonishing 30% of stocks are in this category, with 12.8% losing more than 50% of their value.
Equally impressive, however, is the number of stocks that doubled or more, at a full 15% of the market. Many of these are, of course, much more than doubles, as well.
Analysis
Even a cursory glance at this data shows that the excellent returns shown by the overall market indexes simply don't tell the whole story.
If you didn't own the "winners" you didn't get the types of returns shown by the index.
And if you did own the winners, you stand a good chance of soundly beating the market returns this year.
Aside from being yet another argument for the benefit of owning index mutual funds, the data tells us two things immediately:
The overwhelming majority of mutual fund returns will be horrible, compared to the market. Diversification which didn't mimic the market clearly will hurt returns this year.
Not everyone is making a mint in the stock market. Only those holding the hot stocks, and hot sectors, have had a great year. Mutual fund holders and "true believers" in a struggling stock have been pummelled.
In tomorrow's Stock Brief, we will dissect the types of stocks that had the great returns this year, and offer an analysis of what it means for the future.
Comments can be emailed to the author, Robert V. Green, at rvgreen@briefing.com.
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