As Artemis II hurtles towards a lunar orbit we are reminded of how distance can give us new perspectives on our little planet. So too for time and our savings habits. Funnily enough, those perspectives are more reminders than new lessons. And, it’s definitely a good week for reminders. Top prize for memory-jogging was the Reform UK’s housing spokesperson, Simon Dudley, whose outstanding contribution to post-Grenfell safety debate was that “everyone dies in the end” while attacking current safety regulations. Thus ended Dudley’s 23-day reign as Reform housing guru – even Igor Tudor’s stint at Spurs was 44 days. Of course, on a bigger stage, Pam Bondi learned a very old lesson this week that in a lawless society, the shelf-life of an Attorney General is limited no matter how good the cosmetic surgery. Let’s not go there with ex “ICE Barbie”, Kirsti Noem, except to say that these evangelical-political types really do have the most astonishing fetishes hidden in those bible-stacked closets. Poor Cricket clearly knew too much. Now, let’s take a look at areas of investment where we might need to know a bit more.
In the week of Ireland’s first Savings & Investment Forum, we must applaud any efforts to put our savings capital to better use. The critical impetus is to move from a ‘savings’ no-risk culture to an investment wealth-creation culture. However, I’m personally concerned the investment options in new tax and incentive frameworks might be quite narrow. So, as luck would have it, the most striking thing I read this week highlights the dangers of a relatively ‘narrow’ approach to investment. Credit to Ben Carlson of A Wealth of Common Sense for highlighting the updated findings of Hendrick Bessembinder’s work. If that name sounds familiar it’s because we quote Bessembinder’s work extensively in our EIIS Private Portfolio brochure and newsletters. The Professor of Finance at Arizona State University in a 2018 research paper made a very powerful case for diversification, or a ‘portfolio approach’ to investing. His view, and mine, is that ‘picking winners’ is beyond the capability of all but a handful of people on the planet. Hence, my encouragement to build multi-year portfolios. His research covering S&P 500 stock returns since 1926 flagged two key features of investing:
**60% of all stocks underperform risk-free government bonds(Treasuries).
**Only a tiny 4% of the entire stock market’s securities (company shares) account for the vast majority of investor gains.
The enormous concentration of performance in just a few stocks is strong justification for just buying ‘the market’ or indexing. Think about the Magnificent 7 or MANGO stocks these days and the ‘cost’ of not being invested in a single name like Nvidia (350,000 % outperformance since 1999). Now, let’s take a look at Bessembinder’s latest updated research with a full 100 years of data in the analysis. The inclusion of an extra 10 years of data shows that concentration of performance has accelerated into an even smaller pool of stocks:
“Over the 1926 to 2016 period studied in Bessembinder (2018), 89 firms accounted for half of the $43 trillion in net wealth creation. After including outcomes for the most recent nine years, just 46 firms account for half of the $91 trillion in net wealth creation over the full century.”
Wowzers! $45 trillion of wealth generated by just 46 companies accounts for more than half of ALL returns over time. However, I want to concentrate on the almost 60% of stocks who don’t even beat cash/Treaury bonds. That’s not a figure which helps the marketing departments of private client stockbrokers or active fund managers. But….. it does help those of us who are trying to increase investment in private assets including venture capital, private equity and infrastructure projects. You might wonder why, given it seems to ‘prove’ that investing can result in many companies failing to beat cash – at last count there’s more than €340 billion in Irish bank accounts. Well, one of the most common rebuttal arguments of investing in young venture capital type opportunities is that “most companies fail”. Now check out that figure from the PUBLIC markets. Yes, 60% of those publicly listed companies fail to beat cash in performance terms. So, here’s the mindset change required for investing in private markets – many of the investments won’t better cash but it’s worth it if you can just find a few winners in your portfolio. Furthermore, that should not merit a guffaw from a professional advisor that those winners are too rare to justify investing in the asset class. Repeat slowly back to him/her that 46 companies over 100 years delivered half of ALL returns in the S&P 500. This week we also received a reminder of what private markets can deliver for early stage investors.
SpaceX has filed paperwork to IPO in June. The plan is to raise $75 billion of new money at a valuation of….. $2 trillion. For historical context, please note that the previous global record IPO was Saudi Aramco which raised $29 billion in 2019. In 2025 the entire US capital markets raised a total of $44 billion across 202 IPO listings. For the valuation curious, SpaceX looks like it’s hoping to raise money at circa 100x this year’s revenues. I think the big picture pointer here is that private asset ‘winners’ can generate an outsized proportion of your overall investment returns while the majority will destroy wealth/purchasing power. However, the big learning reminder today is that this outcome is not much different to what happens in those orderly, liquid, mature public markets.
Hopefully, Europe and Ireland will grasp that lesson and understand that diversification should not stop at publicly listed investments. Each asset class has its own risks but the bigger picture doesn’t look too different, be it public or private assets. FORTY SIX companies tell that 100 year old story. Now, Europe must think about how it can fund its own SpaceX and mobilise the €14 trillion of European household savings sitting in wealth destructive low-yield bank accounts. Yep, FOURTEEN TRILLION. It seems apt as we look to the skies and the possible this week, that Artemis is both the Greek goddess of hunting….and transitions.
