The Winner's Curse
By Rob Arnott, Lillian Wu

On the bottom row of Figure 5, we look at the global developed top dog—the largest market-cap company in all developed markets—as compared with the average stock in the All Developed Index.⁸ The global developed top dog underperforms the other 1,999 stocks in the developed market universe, by 12.5 percent in one year, fading only slightly to 10.5 percent per annum over a 10-year span. This global developed top dog beat its comparative universe in just one of 21 ten-year spans. On average, an investor in the global developed top dog lost two-thirds of his or her wealth, relative to the investor who simply held the other 1,999 largest market-cap stocks in the developed markets, and rebalanced once a year. While this outcome lacks statistical significance (we have just 30 independent one-year results, and only three independent 10-year results), the numbers are impressive.

Finally, Figures 6 and 7 document the portfolio results for all 24 of the developed economies’ top dogs. At the beginning of each year, we first select four portfolios, selected by market capitalization:

• the largest 2,000 developed stocks, both equal-weighted and cap-weighted
• the national top company in each of the 24 countries, equal-weighted
• the top company in each of the 12 global sectors, equal-weighted
• the largest-cap company among all 24 developed markets (a one-stock portfolio)

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