Historical Stock Performance

In my last post I identified the top 10 stocks in the past 12 years on a YOY basis.  I would now like to understand the data set a little more in depth and determine the answers to a couple questions:

• What is the distribution of returns across all years? Across the past 5 years? 10 years?
• What are the most winning stocks in the past 3 year period? 5 year period? 3yr period looking back every year for the past five years?
• What are the qualities that make these stocks stand out vs. the crowd? (Answer this in the next post)

The distribution of returns across all 12 years can be seen in the below chart:

The distribution of returns is above and as expected it is centered around 10% which is the historical return of the S&P500. An interesting point to note is the long tail to the right, showing that there are quite a few occurrences when yearly performance is above 100%. 

*Note: The distribution of returns is correct, but the average YoY return for this period is 16.2%, which seems quite high. (I arrived at this number by averaging the percentages as all the YoY returns are equally weighted..I think this is acceptable but could be wrong).  I believe the reason for the higher than expected number is the difference between negative and positive returns, let me illustrate with an example:

• Stock goes from $100 to $110
• % Change = (110-100)/100 = 10%
• Stock goes back from $110 to $100
• % Change = (100-110)/110 = -9.1%
• Average Return
• Actually = (100-100)/100 = 0%
• Average of % = (10%+(-9.1%))/2 = 0.45%---this is WRONG!

From the above example it becomes clear that I cannot average the returns.

Identifying Stocks that can do this consistently:

The stocks that we have identified so far have been the best performing stocks as measured across one year.  It will be easier to make money if we have more time to get into a stock and spend less money on commisions and slippage.  I have filtered stocks that have performed the best in the past 3 years and five years respectively with the list reproduced below.  This will be our starting point to understand what differentiates these stocks when they began their run from the average stock.

Next time we will examine the qualities of these stocks compared to the rest of the market.