Publicly traded corporations are at something of an impasse in the U.S. Their numbers are shrinking: from 7,507 in 1997 to not much more than 3,500 now. Their ranks are getting top-heavy, with most profits and cash flow accruing to a shrinking group of giants.
Investment professionals recognize that the markets are messy places, filled with less than rational participants. From their perspective, this can obviate any further discussion about the value of academic finance and its models.
GUS SAUTER, Wealth Management, The Wall Street Journal
Few people realize that since the bursting of the tech bubble from 2001-2003, the stock market has had positive total returns, as measured by the total market indexes of MSCI and CRSP, in every calendar year except 2008. That record was intact again in 2015 as the CRSP total market index provided an admittedly minuscule, but still positive, return of 0.40%.
J.B. Heaton, Nick Polson and J.H. Witte recently authored a nice short paper—it’s all of four pages—entitled “Why Indexing Works.” In it, the authors developed a simple stock selection model to explain why active equity fund managers tend to underperform their benchmark index.