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Older Companies removed from S&P 500 index do not underperform
This article tries to pull the legs out from underneath the myth of that new stocks are better. The myth says you should from time to time clean your stock portfolio and weed out “out dated” stocks and get out of older industries because they sink. According to the research done by Siegel it is not true, but on the contrary old companies outperform. He compares a portfolio of companies listed in the original S&P 500 and Dow Jones Industrial Index versus the continually updated S&P 500 index. The companies removed from the index do not under-perform as the myth goes. That is the average of the old companies, some companies may under-perform, but as a group they do not under-performe.

Quote: “Surprising Results

Despite our expectations of lagging returns from a portfolio of the 500 original firms, the actual returns proved superior. From March 1, 1957 through December 31, 2003, the buy-and-hold portfolio of original 500 stocks returned 11.4% a year versus 10.85% for the continually-updated S&P 500 Index, and did so with a lower risk (standard deviation) of 16.09% versus 17.02% for the updated S&P Index. ”