STA Blog

‘Do equities outperform bonds?’ Ask Terry Smith

FTMoney, one of the sections of the Weekend Financial Times, has guest contributors writing on a regular basis. On Saturday 10th November City legend Terry Smith posed the question above, and the article was so very good I urge you to read it in full.  In the meantime, I will paraphrase here, picking on the elements of greatest interest to technical analysts.

From Grammar school in Stratford, via University College Cardiff, Mr Smith started banking in London in 1973 – and has never looked back. Notoriety followed when, as Barclays de Zoete Wedd’s (BZW) top banking analyst, he put out a sell note on Barclays Bank. Then, as head of research at UBS Phillips and Drew, he was sacked for publishing the book ‘Accounting for Growth’. He went on to become CEO of Tullett Prebon and since 2010 is CEO and CIO of the firm he founded, Fundsmith L.L.P.

Looking at research published in the Journal of Financial Economics by Professor Hendrik Bessembinder, for the period 1926 to 2016 in which Dr Bessembinder compared the performance of all Amex, Nasdaq and NYSE stocks (all 25,967 of them) against that of one-month US Treasury Bills, results are astounding. Less than half of the shares (42.6 per cent) managed to outperform over the whole period – or until de-listing – even with dividends reinvested – essentially a buy and hold strategy. The vast majority of stocks had negative returns, with only a handful doing the heavy lifting – a situation we have today with FAANG shares.

Stockbrokers know full well that equity indices have a positive skew as successful companies with bullish momentum replace ailing laggards in the index calculation. Also, few companies lasted for the 90 years of this study; a little over 4 per cent of these accounted for all the wealth created over the period. Shockingly, during the period covered by this survey the average lifespan of a listed firm was 7.5 years. Divvying things up decade by decade, things have gone downhill in that not only are returns lower than those on T-Bills, they have also been declining all along. Of stocks first listed in 1977 or later, most had a negative return, full stop.

Like Warren Buffet’s advice to his wife who is wary of investments, Mr Smith suggests putting one’s money in an index tracker as stock selection’s too miss rather than hit. Then again, he would, wouldn’t he?

Posted in Finance, Markets, STA charts, Technical Analysis, Technical Analysis Courses, Technical Analysis Training, Trading, Trending
Tags: , , ,

The views and opinions expressed on the STA’s blog do not necessarily represent those of the Society of Technical Analysts (the “STA”), or of any officer, director or member of the STA. The STA makes no representations as to the accuracy, completeness, or reliability of any information on the blog or found by following any link on blog, and none of the STA, STA Administrative Services or any current or past executive board members are liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use. None of the information on the STA’s blog constitutes investment advice.

Not ready to join? Stay Updated

If you want to learn more about membership and being part of the STA, sign up for our updates so we can keep in touch.


Monthly Meetings

The STA holds 11 monthly meetings in the City of London, including a summer and Christmas party where canapés and refreshments are served.


Latest Videos

As a service to our members, many of whom are unable to attend all our monthly meetings, we have been making videos of meeting presentations for several years.


STA Libraries

The STA has an extensive library of classic technical analysis texts. There are over 1000 books in the collection. It is held at the Barbican Library with a smaller...


Market Technician

Latest research and news

More Info

World Class Tutors

STA Course Lecturers

More Info


Be part of something special

More Info


View latest posts

More Info