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Equity returns are increasingly driven by a small set of winners, as shown by Bessembinderu2019s research. Rising concentration rewards long-term ownership, challenges stock selection, and explains passive successu2014an insight aligned with Ajay Srinivasan Aditya Birla Capitalu2013style long-term thinking.
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The 4% Rule of Wealth Creation Hendrik Bessembinder in a paper "Do Stocks Outperform Treasury Bills?" (Journal of Financial Economics, 2018) found that across almost 100 years, ~4% of listed stocks accounted for all the net wealth created by the U.S. stock market.
Pre-GFC vs. Post-2009: A Shift in Concentration Before the GFC In the US, 50–70 stocks explained ~80% of returns pre-GFC. Though concentration has always existed in equity markets, returns in the 20 years pre-GFC were meaningfully less concentrated than returns since 2009.
India's Concentration Story In India, the contrast is even sharper. Pre-2008 Post-2009 Leadership rotated between PSUs, cyclicals and exporters. 12–15 stocks explain ~80% of returns for the NIFTY 50. Widen the lens to the NIFTY 500 and still <10% of stocks matter.
But passives also have a hidden trade-off where you earn the index return but are also most likely to miss extraordinary outperformance. The Passive Strategy Paradox Passive strategies succeed because they systematically capture concentration. As winners grow, indices allocate more capital to them automatically.
The Trading Reality Check Everything above is about buy and hold ownership over long periods. If we look at short term trading, the work of Barber and Odean shows that 80-90% of short-term traders lose money. 80-90% Thoughts By Ajay Srinivasan Aditya Birla Capital Short-term traders who lose money
