I did some backtesting with the data from the beginning of 1995 to this year, and found that if you hold GE from the beginning of 1995 to the end of 1998, MSFT from the beginning of 1999 to the end of 2000, then GE from 2001 to 2004, XOM 2005 to 2011, AAPL 2012 to 2018, MSFT 2019 to 2020 and switch to AAPL at the beginning of this year, the total return is more than 1800%, which is quite a bit higher than SPY at about 750%.
This is without considering dividends and only switch holding at the end of year the dethroning happened. SPY should perform quite a bit better with dividends but I doubt the return would be that much better. On top of that, my backtesting is done with portfolio adjustment happens only at the end of the year. If the switching is done on the month the dethroning happened, the total return might be quite a bit better but I had some trouble finding data.
My current ideas of why this works is that when a company becomes the one with largest market cap in the world, is usually still have some growth potential, while when it gets dethroned the decline is usually quite small, it could also still be growing, just not as fast as the new market cap king. So only holding the largest market cap company allows the investor to enjoy greater than average growth and suffer less decline in the long run.
My backtesting data is the in table below:
| Period | Holding | Purchasing price | Selling price | Return | Aggregate return | SPY | SPY aggregate return |
|---|---|---|---|---|---|---|---|
| 1995-1998 | GE | 8.13 | 32.68 | 301.97% | 301.97% | 45.7~123.37 | 169.96% |
| 1999-2000 | MSFT | 34.9 | 21.69 | -37.85% | 149.82% | 132 | 188.84% |
| 2001-2004 | GE | 44.94 | 35.09 | -21.92% | 95.06% | 118.16 | 158.56% |
| 2005-2011 | XOM | 51.02 | 84.76 | 66.13% | 224.06% | 131.32 | 187.35% |
| 2012-2018 | AAPL | 14.62 | 39.44 | 169.77% | 774.21% | 269.93 | 490.66% |
| 2019-2020 | MSFT | 99.55 | 222.42 | 123.43% | 1853.21% | 375.31 | 721.25% |
| 2021 | AAPL | 133.52 | 135.37 | 1.39% | 1880.27% | 392.64 | 759.17% |
Submitted February 13, 2021 at 07:00AM by Liopleurod0n https://ift.tt/2NlN21V
