In his recent Morgan Stanley post, Michael Mauboussin ponders how the recent increase in concentration of US companies compares to the degree of concentration in the past and whether we can learn something from it.
There are some interesting takeaways. I think it shows that the top companies, unlike the past, is able to create more shareholder returns when they are bigger.
If you wish to read the report in full, you can find the 18-page report here.
Or you can take a look at this summary.
The Degree of Concentration We see Now is Not Unique
1963 was the peak of market concentration where the top 10 companies are 30% of the market. At the end of 2023, it is 27%. We are near but this is not new.
Elroy Dimson, Paul Marsh, and Mike Staunton, studied the concentration of the market dating back to 1900. They found that
Concentration in the 1930s was similar to that of the early 1960s in the US. They estimate the top 10 stocks were 38% of the market in the 1900s. Not a lot of Stocks have Occupied the Top Spot in the Past 74 Years
The chart below shows the top 3 stocks in market capitalization at the end of the year:
What is surprising is that there are just 17 stocks on the list:
During this time, 28,000 stocks have been listed at any time since 1950. 11 stocks held a spot in top 3 for greater than 2 years. 5 stocks appear in the top most frequent (Exxon, AT&T, IBM, GE, and Microsoft) United States Stock Market is Not As Concentrated Relative to Other Countries
We need to have some basis if we say that
