U.S. stock market has become a money-losing company in recent years? the answer is negative.
Early US stocks
Buffett mentioned in his 1960 annual report letter to his partners that among the companies listed on the New York Stock Exchange in 1960, 653 stocks lost money and only 404 stocks made profits. It can be seen that the loss of listed companies in the US stock market has always been the norm, and it has not only changed in recent years.
US stocks in recent years
In my book “The Rules of 10 Baggers“:
- Section 6-2, page 276, the revenue growth rate is the key to the stock price rise of US stock companies in this section.
From 2008 to 2015, among the Fortune 500 companies, only 242 were loss-making companies; that is, nearly half of the companies were loss-making on the books! In 1992 on the same list, 149 companies lost money, and in 1988 earlier, only 42 companies lost money. The trend is obvious.
In 2022, nearly 1,200 companies in the S&P 500, S&P 400, S&P 600 and S&P Completion indexes are expected to end 2022 in the red. This accounts for a third of the overall constituents. Shares of these loss-making companies are down an average of 46% in 2022, far below the performance of the index itself.
It’s not just small companies that are bleeding. Nine of the S&P 500 Large Cap stocks with adjusted losses in 2022 are down an average of 33% in 2022. That was much worse than the S&P 500’s drop at the time.
What about in 2022 for US stock?
According to my calculation as of the last trading day of 2022, only 28.82% of listed companies in the US stock market are profitable, with positive earning.
In the 2019 list of the top 500 Chinese companies published by Fortune magazine, 30 of them lost money. The ratio is actually lower than that of the United States and Taiwan. It is reasonably estimated that the reason may be that China’s review of listed companies is very strict. In order to protect investors from future storms caused by poor management of individual stocks and maintain the stability of the stock market, companies Continuous profitability is one of the necessary conditions for listing, which will result in such a result.
In June 2021, the Taiwan Institute of Directors analyzed more than 1,700 listed counter companies in Taiwan and found that only about 100 companies have made profits for the last 15 consecutive years.
The performance of loss-making companies?
In 2018, 81% of the companies that went public with initial public offerings (IPOs) in the U.S. were loss-making, and the figure was also 81% at the peak of the Internet bubble in 2000.
University of Florida finance professor Jay Ritter has studied thousands of IPOs that occurred between 2001 and 2016. On their first day of trading, unprofitable companies nearly matched profitable companies, gaining an average of 13.8 percent versus 14.2 percent, respectively. But over the next three years, the difference was stark. Unprofitable companies returned an average of 12.6%, underperforming the market by 9.7%, while profitable companies returned an average of 30.4%, beating the market by 7.9%, or about 3% per year.
The results of the University of Florida study are reassuring. It can be seen that the eyes of investors are still discerning, or the capital market is still fair. In the long run, an ugly daughter-in-law always wants to see her parents-in-law; if she cannot prove that she can make a profit for shareholders in the long run, she will eventually be abandoned by investors.
- “Average lifespan of companies”
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