Why companies become too big to succeed
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License (according to Flickr): Attribution License
License (according to Flickr): Attribution License
(MoneyWatch) Many investors often expect the best company in a given industry to be a steady source of returns. But a recent study shows why you're better off staying away from those stocks. Research Affiliates founder Robert Arnott and research analyst Lillian Wu examined the returns of "top dog" companies as ranked by market capitalization in each sector or market. They found that the stocks of these businesses were "dismayingly unattractive." Indeed, there's a "statistically significant tendency for top companies in each sector to underperform both the overall sector and the stock market as a whole." The academic research demonstrates that larger companies typically exhibit a lower growth rate and earn a lower return on capital than smaller companies, eventually exhibiting "diseconomies of scale" as they grow. Investors often mistakenly focus on the great past performance, failing to realize that it won't continue.
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Robert Arnott
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Lillian Wu
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Country: China
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Country: Canada
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Country: Germany
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Source Site: http://feeds.cbsnews.com/~r/CBSNewsBusiness/~3/em4lLD9MEvg/
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- bam advisor services
- bam alliance
- buckingham asset management
- larry swedroe
- lillian wu
- research affiliates
- robert arnott
- top dogs
- winners curse
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Riding a company's stock to the top of its industry is one thing, but are investors rewarded once it gets there?
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Why companies become too big to succeed
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