Based on the WCRS screenshot below, if at the end of 2013 you had invested an equal weighted portion of
$100,000
in NVIDIA and nine other companies that went bankrupt, how would your performance compare to the SPX return at this time, and what does this-imply about the nature of stock market returns?\\nYou would haye performed roughly the same as the SPX. This illustrates the even synmetry of the – market, with winhers and losers equally offsetting each other.\\nYou would have underperformed the SPX by approximately
746%
. This demonstrates the negative asymmetry of stock market returns: You would have outperformed the SPX by over
1000%
. This exemplifies the positive asymmetry of stock market returns. asymmetry of stock market returns.
The correct answer and explanation is:
The correct answer is:
“You would have outperformed the SPX by over 1000%. This exemplifies the positive asymmetry of stock market returns.”
Explanation:
- At the end of 2013, if you had invested $100,000 equally across NVIDIA (NVDA) and nine other companies that went bankrupt, each stock would have received $10,000.
- The nine bankrupt companies would have resulted in a total loss of $90,000.
- However, NVIDIA has been one of the best-performing stocks over the past decade, increasing in value by well over 10,000% since 2013.
- Even if NVIDIA had grown by just 10,000% (100x), your $10,000 investment in NVIDIA alone would be worth $1,000,000 today.
- This means that despite losing 90% of your initial investments, the extreme gain in a single winner more than offsets the losses.
Implication:
This highlights the positive asymmetry of stock market returns:
- Gains in a few stocks can vastly outweigh losses in others.
- Stock market returns are not evenly distributed; they are driven by a small number of extreme winners (e.g., NVIDIA, Apple, Amazon).
- This is why diversification can sometimes limit upside potential, and why picking just one major winner can transform a portfolio.
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