More Than You Know: Finding Financial Wisdom in Unconventional Places (Updated and Expanded) (Columbia Business School Publishing) by Michael J. Mauboussin

Author:Michael J. Mauboussin
Language: eng
Format: mobi
ISBN: 9780231513470
Publisher: Columbia University Press
Published: 2007-11-22T14:00:00+00:00

Consistent with theory, attrition plays a central role in the improvement of lowest-quartile returns. Just 60 percent of the lowest-quartile companies were active after five years, as many of the poor performers went bankrupt or were acquired. This attrition creates a survivorship bias, allowing returns to rise during the decade. In contrast, 85 percent of the firms in the highest-return quartile were active after five years. Attrition rates across all quartiles tend to average out after five years.

One consistent feature across the many mean-reversion studies is that some companies (albeit not many) can and do earn persistently high returns. In the study of nearly 700 retailers from 1950 to 2001, 14 percent of the companies never earned below their cost of capital.8 Of the 1,700 technology companies in the sample from 1960 to 1996, 11 percent sustained an unblemished record of positive excess returns.

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