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>Shareholders are suffering their worst investment returns since the Great Depression This aged horribly. The S&P 500 has increased an average of ~15% per year

>Shareholders are suffering their worst investment returns since the Great Depression This aged horribly. The S&P 500 has increased an average of ~15% per year since the article was published. That's more than twice the average over the last century.

simonh 5y ago
That doesn't take into account the roughly 50% churn rate per decade in the S&P 500. The companies that were in the S&P 500 in 2013 did not all benefit from and average 15% stock price increase, not even close. The point was that, according to the research, publicly listed companies following the shareholder value strategy did not perform significantly better than those which didn't. The historical performance of the index as a whole will vary significantly depending on when you do the analysis, but comparing the relative performance of companies over a sufficiently long enough period is reasonable regardless of when you do it.
- xcdfgvd 5y ago
  The companies didn't benefit, but the shareholders did. Churn rate is indicative of a competitive and healthy economy. Removal doesn't necessarily imply failure or stagnation; mere under performance is sufficient for removal. Companies that are removed might even see their average performance regress upwards: https://finance.yahoo.com/news/the-company-tesla-booted-from-the-sp-500-is-outperforming-it-over-50-202435898.html https://finance.yahoo.com/news/the-company-tesla-booted-from...
  - simonh 5y ago
    I'm not saying churn is a bad thing per se, I'm saying it renders any naive usage of the S&P as a proxy for company returns introduces a huge dollop of survivorship bias. You're adding up all the increased returns of the companies that did well and culling out any influence on the stats from companies that did sufficiently poorly, which is about half of the companies.
    - gruez 5y ago
      >I'm saying it renders any naive usage of the S&P as a proxy for company returns introduces a huge dollop of survivorship bias. You're adding up all the increased returns of the companies that did well and culling out any influence on the stats from companies that did sufficiently poorly, which is about half of the companies. I'm fairly sure that's factored into the indexing methodology[1]. In other words, they're not just adding up all the market caps of the 500 companies and calling it a day. This seems to be confirmed in the price data. The s&p 500 index grew by 300.9% from july 2011 to july 2021. In the same time period, The share price of VOO (an S&P 500 index fund) went up 302.4%[2][3]. In other words, the returns of the index very closely tracks the returns had you invested (unless you think the VOO fund has the ability to print money). [1] https://www.spglobal.com/spdji/en/documents/methodologies/methodology-sp-us-indices.pdf https://www.spglobal.com/spdji/en/documents/methodologies/me... [2] https://www.marketwatch.com/investing/index/spx/charts?mod=mw_quote_advanced https://www.marketwatch.com/investing/index/spx/charts?mod=m... [3] https://www.marketwatch.com/investing/fund/voo/charts?mod=mw_quote_advanced https://www.marketwatch.com/investing/fund/voo/charts?mod=mw...
      - simonh 5y ago
        I'm not sure you understand my point. All the companies this article is talking about are listed and have shareholders. It's not about publicly listed versus anything else, it's about the different results from listed companies with different governance models. That aside, if I bought a share in every company that was in the S&P 500 in 2013 and tracked their returns to now, only half of those shares would still even be in the S&P 500. The return on those that dropped out of it aren't reflected in the S&P 500 results, but they still matter from the POV of long term shareholder returns. You can't just exclude failing companies from the statistics and pretend that the stats are still valid and everything is rosy in investorland. That's sweeping under the rug on a massive scale. Anyway investors in index funds aren't owners of the underlying shares and don't have any relationship with those companies. The article is about that notional ownership relationship between shareholders and companies, so index funds just aren't relevant to this discussion even if their performance was relevant (it isn't) or meaningful with respect to individual share ownership (also not). The article does reference actual long term like for like studies of company performance. I'd love to see the results from updated studies.
- throw0101a 5y ago
  > That doesn't take into account the roughly 50% churn rate per decade in the S&P 500. The companies that were in the S&P 500 in 2013 did not all benefit from and average 15% stock price increase, not even close. Which is why you generally want to invest in index funds and not individual companies.
JohnJamesRambo 5y ago
It should have made you mortgage the farm to buy stocks, just as the record returns now should make you think about finding other markets… Things trade off- https://inflationchart.com/spx-in-gold/?time=20%20years&show_adjuster=1&logarithmic=1 https://inflationchart.com/spx-in-gold/?time=20%20years&show...

simonh 5y ago

That doesn't take into account the roughly 50% churn rate per decade in the S&P 500. The companies that were in the S&P 500 in 2013 did not all benefit from and average 15% stock price increase, not even close. The point was that, according to the research, publicly listed companies following the shareholder value strategy did not perform significantly better than those which didn't. The historical performance of the index as a whole will vary significantly depending on when you do the analysis, but comparing the relative performance of companies over a sufficiently long enough period is reasonable regardless of when you do it.

xcdfgvd 5y ago
The companies didn't benefit, but the shareholders did. Churn rate is indicative of a competitive and healthy economy. Removal doesn't necessarily imply failure or stagnation; mere under performance is sufficient for removal. Companies that are removed might even see their average performance regress upwards: https://finance.yahoo.com/news/the-company-tesla-booted-from-the-sp-500-is-outperforming-it-over-50-202435898.html https://finance.yahoo.com/news/the-company-tesla-booted-from...
- simonh 5y ago
  I'm not saying churn is a bad thing per se, I'm saying it renders any naive usage of the S&P as a proxy for company returns introduces a huge dollop of survivorship bias. You're adding up all the increased returns of the companies that did well and culling out any influence on the stats from companies that did sufficiently poorly, which is about half of the companies.
  - gruez 5y ago
    >I'm saying it renders any naive usage of the S&P as a proxy for company returns introduces a huge dollop of survivorship bias. You're adding up all the increased returns of the companies that did well and culling out any influence on the stats from companies that did sufficiently poorly, which is about half of the companies. I'm fairly sure that's factored into the indexing methodology[1]. In other words, they're not just adding up all the market caps of the 500 companies and calling it a day. This seems to be confirmed in the price data. The s&p 500 index grew by 300.9% from july 2011 to july 2021. In the same time period, The share price of VOO (an S&P 500 index fund) went up 302.4%[2][3]. In other words, the returns of the index very closely tracks the returns had you invested (unless you think the VOO fund has the ability to print money). [1] https://www.spglobal.com/spdji/en/documents/methodologies/methodology-sp-us-indices.pdf https://www.spglobal.com/spdji/en/documents/methodologies/me... [2] https://www.marketwatch.com/investing/index/spx/charts?mod=mw_quote_advanced https://www.marketwatch.com/investing/index/spx/charts?mod=m... [3] https://www.marketwatch.com/investing/fund/voo/charts?mod=mw_quote_advanced https://www.marketwatch.com/investing/fund/voo/charts?mod=mw...
    - simonh 5y ago
      I'm not sure you understand my point. All the companies this article is talking about are listed and have shareholders. It's not about publicly listed versus anything else, it's about the different results from listed companies with different governance models. That aside, if I bought a share in every company that was in the S&P 500 in 2013 and tracked their returns to now, only half of those shares would still even be in the S&P 500. The return on those that dropped out of it aren't reflected in the S&P 500 results, but they still matter from the POV of long term shareholder returns. You can't just exclude failing companies from the statistics and pretend that the stats are still valid and everything is rosy in investorland. That's sweeping under the rug on a massive scale. Anyway investors in index funds aren't owners of the underlying shares and don't have any relationship with those companies. The article is about that notional ownership relationship between shareholders and companies, so index funds just aren't relevant to this discussion even if their performance was relevant (it isn't) or meaningful with respect to individual share ownership (also not). The article does reference actual long term like for like studies of company performance. I'd love to see the results from updated studies.
throw0101a 5y ago
> That doesn't take into account the roughly 50% churn rate per decade in the S&P 500. The companies that were in the S&P 500 in 2013 did not all benefit from and average 15% stock price increase, not even close. Which is why you generally want to invest in index funds and not individual companies.

JohnJamesRambo 5y ago

It should have made you mortgage the farm to buy stocks, just as the record returns now should make you think about finding other markets… Things trade off- https://inflationchart.com/spx-in-gold/?time=20%20years&show_adjuster=1&logarithmic=1 https://inflationchart.com/spx-in-gold/?time=20%20years&show...