Why investors should start to think more short-term : compar

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Hendrik Bessembinder: you might not know his name, but everyone in fund management does. Scottish Mortgage’s James Anderson first told me about him three years ago. Until then, Bessembinder had been a relatively obscure academic, then he published a paper that backed up every hunch Anderson had ever had. The paper concluded that, over the long term, all the returns from the US stockmarket came from 4% of listed companies. The rest are pointless. Take that internationally (he did another study a few years ago) and it falls to 1%. 
You could respond to this information by admitting you haven’t a hope of figuring out which stocks will make up the 1% – or the 4% – and so just buy everything and hope for the best. Hello passive investing. However, you could also do what Anderson (and the firm he is soon retiring from, Baillie Gifford) has been doing for many years and, as Robin Wigglesworth puts it in the Financial Times, take it as affirmation that one should invest aggressively and for the long term in “a narrow clutch of potential superstars – almost whatever the price”. Even if most of your picks end in disaster, “finding just one of these nascent stockmarket titans can more than compensate for losses elsewhere”. It sounds great – intellectually stimulating, hugely supportive of the creativity of capitalism, potentially very lucrative and pleasingly long term (all fund managers like to say they focus on the long term). Buy, hold, wait, win. What’s not to like?

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