Too big to Succeed

This post is a summary of an abstract to the paper by Arnott and Wu 2012: The Winners Curse: Too Big To Succeed? You can download the full article for free.

We find a statistically significant tendency for top companies in each sector to underperform both the overall sector and the stock market as a whole. In an earlier U.S.-only study, we found that 59% of these Top Dogs underperformed their own sector in the next year, and two-thirds lagged their sector over the next decade. We found a daunting magnitude of average underperformance, averaging between 300 and 400 bps per year, over the next 1 to 10 years.


O
utside the United States, the Sector Top Dogs generally underperform their own sector even more relentlessly than in the United States!

 

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About mcturra2000

Computer programmer living in Scotland.
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2 Responses to Too big to Succeed

  1. I remembered someone once wrote a nice phase about the companies in FTSE 100, 🙂 Companies that end up in FTSE 100 tend to die. The point I believe is that once a company get to giddy height of FTSE 100, there is little chance of getting any more valuable. Instead, they just stumble along, hopefully spending good dividend and sooner or later, they will get taken over or get into serious troubles.

    • mcturra2000 says:

      I do vaguely recall that Peter Lynch said that by the time a company made its way into the Dow, it was half-way dead (or something like that). He also said that “you can’t trust any of them”.

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