fascinating

12 of the top 50 companies that created the most wealth in the last 30 years were venture-backed companies:

Would you have held those companies throughout that period or would you have sold out?

If you know what companies to invest, concentrate. Otherwise, diversify.

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"Wealth creation is highly concentrated. The five firms (0.008% of the total) with the largest wealth creation during the January 1990 to December 2020 period (Apple, Microsoft, Amazon, Alphabet, and Tencent) accounted for 10.34% of global net wealth creation. The best performing 159 firms (0.25% of total) accounted for half of global net wealth creation. The best performing 1,526 firms (2.39% of total) accounted for all net global wealth creation."

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"As noted, Apple created $US 2.67 trillion in stock market wealth during the January 1990 to December 2020 sample. Thus, Apple alone accounted for 3.53% of the $US 75.66 trillion in net global wealth creation and 2.74% of the $US 97.75 trillion in gross global wealth creation. Table 4 also reports the percentage of global net (across all firms) and gross (across firms with positive outcomes) wealth creation during the January 1990 to December 2020 sample period accounted for by the indicated firm and those listed above it. The top five firms (Apple, Microsoft, Alphabet, Amazon, and Tencent), which comprise 0.008% of the 63,785 firms in the sample, accounted for 10.34% of global net wealth creation and 8.00% of global gross wealth creation. The top 20 firms (0.031% of the firms in the sample) accounted for 19.86% of global net wealth creation and 15.38% of global gross wealth creation. The top 50 firms (0.078% of the firms in the sample) accounted for 30.87% of global net wealth creation and 23.89% of global gross wealth creation."

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"The results are also relevant to the debate regarding active vs. passive investing. The results here show that the wealth created by stock market investing is largely attributable to large positive outcomes to a relatively few stocks. For those investors without a comparative advantage in identifying the few stocks that will create the most wealth (or in selecting a manager with the ability to do so) and without a substantial preference for positive skewness, the results reinforce the desirability of investing in a broad passive index. On the other hand, for investors with a sufficiently strong preference for positive skewness or for the (presumably few) investors with the appropriate comparative advantage in identifying stocks poised to deliver outsized long-run returns, the results highlight the degree to which successful stock selection can enhance wealth."

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