Comments On The BTSX/BDOW Strategies - #2
There is an interesting paper floating around the interwebs about companies' contribution to the overall return of the stock market.
It argues that most stocks aren't good investments since only a small sliver of them, less than 4%, have been responsible for the total return of the stock market.
"The positive performance of the overall market is attributable to large returns generated by relatively few stocks."
This is quite interesting indeed.
"It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price." - Warren Buffet
This paper made me realize that the BTSX/BDOW strategies work by zeroing in on the type of companies that are in the elite sub-4% group of companies that contribute to the long term return of the stock market.
The strategies accomplish this by focusing on stable, high dividend yield sustained over long periods of time, which is a reliable indicator of performance relative to share price. As Ross Grant pointed out, these are companies that have figured out how to make so much money that they can give some back to their shareholders.
Some additional food for thought: this article provides a fantastic critique of the original paper that was the inspiration for this post. You would be well advised to give it a read.