Blackstar's research on all-time highs

I want to share some of my notes from an interesting research paper by Blackstar Funds, entitled "The Capitalism Distribution". In the paper they look at all individual stock returns from 1983 through 2006. The dataset includes:

"all common stocks that traded on the NYSE, AMEX, and NASDAQ since 1983, including delisted stocks. Stock and index returns were calculated on a total return basis (dividends reinvested)."

Here are a few of my favorite excerpts (emphasis added):

• "A minority of stocks are responsible for the majority of the market’s gains"
• "The biggest winners on a total return basis were simply the minority that outperformed their peers"
• "You may be wondering how the Russell 3000 index can have an overall positive rate of return if the average annualized return for all stocks is negative. The answer is mostly a function of the index construction methodology ...  capitalization weighted indexation is like a simple trend‐following system that rewards success and punishes failure.
• "Both the biggest winners on annualized return and total return basis tended to have one thing in common while they were accumulating market beating gains. Relative to average stocks they spent a disproportionate amount of time making new multi-year highs. ... Likewise, the worst performing stocks tended to spend zero time making new multi-year highs while they were accumulating losses. Instead, relative to average stocks they tended to spend a disproportionate amount of time at multi‐year lows.

The paper has several great charts like this one:

And their closing thoughts:

"Could it be this simple; long term trend following on stocks? That’s our conclusion."

Results like these explain why I focus on the all-time high list.