Analysis: “Big 3 Investing” has beaten the market the past 25 years

by proprietism

I have done an analysis comparing purchasing the top 3 US market cap companies every year on January 1st and holding until today vs. purchasing the same amount of SPY on January 1st and holding until today (close price on 4/24/2020.)

To determine “top 3 market cap” I used the Q1 values in Financial Times’ Global 500 list. Since the FT Global 500 list started in 1996, that is where I begin.

In my Big 3 Portfolio, I purchase $1000 worth of each that year’s top 3 market capitalization companies at their Jan 1st open price.

In my SPY Portfolio, I purchase $3000 a year of SPY (S&P 500 tracking index, aka “the market”) at it’s Jan 1st open price.

Thus the total cash basis of 25 annual batches of $3000 is $75,000 for each portfolio.

I found that the Big 3 Portfolio beat the SPY portfolio by about $34,281.34, 20.75% over the value of the final SPY Portfolio value.

IMPORTANT NOTES:

  • After pulling all the data, I realized the faulty assumption of this study is that the FT500 market cap ranking is posted on January 1st to know which 3 companies to purchase for that year. I have no idea what day it was posted, and if the years before the FT500 went to quarterly rankings were later in the year it might be showing more in hindsight instead of foresight. In hindsight, I probably should have purchased the previous year’s top picks those early years and the previous Q4 picks after the survey went quarterly. May do a version 2 along those lines at some point.
  • I do not reinvest dividends. I may include that on a version 2.0.
  • I used fractional shares (i.e. however many shares you could have purchased with exactly $1000). That might not have been possible when this started but is possible now.
  • This assumes no additional buying or selling. Another analysis worth doing might consider selling companies that drop out of the top 3 on the last day of the year and buying the new ones taking their place with the profits you have built up so far. This would keep you from holding companies like GE and Exxon as they decline and likely lead to bigger returns, I’d guess.

Here are my findings, broken down into combined annual lots of $3000 for each portfolio.

Year Top 3 Market Cap BIG 3 $1000 x 3 Lot Value Today Big 3 Lot Gain ($) Big 3 Lot Gain (%) SPY $3000 Lot Value Today SPY Batch Gain ($) SPY Batch Gain (%) Big 3 – SPY Net Gain ($)
1996 GE, KO, XOM $5,174.90 $2,174.90 72% $13,823.64 $10,823.64 361% -$8,648.74
1997 GE, MSFT, XOM $18,975.80 $15,975.80 533% $11,413.15 $8,413.15 280% $7,562.65
1998 GE, MSFT, XOM $12,473.44 $9,473.44 316% $8,723.77 $5,723.77 191% $3,749.67
1999 GE, MSFT, XOM $6,396.14 $3,396.14 113% $6,880.45 $3,880.45 129% -$484.31
2000 CSCO, GE, MSFT $3,875.26 $875.26 29% $5,726.21 $2,726.21 91% -$1,850.94
2001 GE, MSFT, XOM $9,060.78 $6,060.78 202% $6,431.14 $3,431.14 114% $2,629.64
2002 GE, MSFT, XOM $6,511.29 $3,511.29 117% $7,374.77 $4,374.77 146% -$863.48
2003 GE, MSFT, XOM $8,188.52 $5,188.52 173% $9,554.42 $6,554.42 218% -$1,365.90
2004 GE, MSFT, XOM $7,604.92 $4,604.92 153% $7,597.19 $4,597.19 153% $7.73
2005 GE, MSFT, XOM $7,547.51 $4,547.51 152% $6,983.46 $3,983.46 133% $564.05
2006 GE, MSFT, XOM $7,610.09 $4,610.09 154% $6,780.97 $3,780.97 126% $829.11
2007 GE, MSFT, XOM $6,583.31 $3,583.31 119% $5,967.73 $2,967.73 99% $615.57
2008 GE, MSFT, XOM $5,517.03 $2,517.03 84% $5,793.42 $2,793.42 93% -$276.39
2009 MSFT, WMT, XOM $11,796.00 $8,796.00 293% $9,386.44 $6,386.44 213% $2,409.56
2010 AAPL, MSFT, XOM $15,617.62 $12,617.62 421% $7,554.60 $4,554.60 152% $8,063.02
2011 AAPL, CVX, XOM $7,625.22 $4,625.22 154% $6,699.63 $3,699.63 123% $925.59
2012 AAPL, MSFT, XOM $11,920.97 $8,920.97 297% $6,644.57 $3,644.57 121% $5,276.41
2013 AAPL, BRK-B, XOM $6,117.07 $3,117.07 104% $5,850.11 $2,850.11 95% $266.96
2014 AAPL, MSFT, XOM $8,672.80 $5,672.80 189% $4,614.14 $1,614.14 54% $4,058.66
2015 AAPL, BRK-B, XOM $4,245.55 $1,245.55 42% $4,113.33 $1,113.33 37% $132.21
2016 AAPL, GOOGL, MSFT $7,645.98 $4,645.98 155% $4,234.18 $1,234.18 41% $3,411.80
2017 AAPL, GOOGL, MSFT $6,818.03 $3,818.03 127% $3,772.26 $772.26 26% $3,045.76
2018 AAPL, GOOGL, MSFT $4,901.87 $1,901.87 63% $3,169.47 $169.47 6% $1,732.41
2019 AAPL, AMZN, MSFT $5,225.28 $2,225.28 74% $3,451.13 $451.13 15% $1,774.14
2020 AAPL, AMZN, MSFT $3,339.98 $339.98 11% $2,623.82 -$376.18 -13% $716.16
COST BASIS ($3000 x 25 years) BIG 3 TOTAL VALUE TODAY (4/24/2020) BIG 3 NET GAIN ($) BIG 3 NET GAIN (%) SPY TOTAL VALUE TODAY (4/24/2020) SPY NET GAIN ($) SPY NET GAIN (%) BIG 3 – SPY NET GAIN
TOTALS $75,000 $199,445.35 $124,445.35 166% $165,164.01 $90,164.01 120% +$34,281.34

The annual Big 3 lot beat the annual SPY lot long-term 19 out of 25 years. This is very heavily indebted to Microsoft offsetting many years of Exxon and GE being top 3 companies which are now in major decline. On the individual stock side, it wasn’t nearly as lopsided: 38 of 75 batches beat $1000 worth of SPY purchased on the same day, 37 did not. As we slip into the past decade, that number drops drastically, with 25 batches outperforming the market and 8 underperforming it.

Microsoft (21 years), Apple (11 years) Amazon (2 years) and Google (3 years) beat the matching SPY lot every single year it made the list.

Exxon (19 years), GE (13 years), Cisco (1 year), Chevron (1 year), Wal-mart (1 year) and Coca-Cola (1 year) lost to the SPY lot every single year they made the list.

Berkshire split, with one year beating the market and one year losing to it.

I have the individual stocks/annual lots broken down on a Google Spreadsheet here.

 

Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence.