Bespoke Investment Group has an interesting piece dissecting the S&P 500's gains over the past 12 months, which of course coincides with the recovery in the stock market. Although the S&P 500 rose 68.6 per cent between March 9, 2009, and March 9, 2010 (without factoring in dividends), the average stock in the index fared far better: up 122 per cent.
The reason for the big difference relates to the fact that low-weighted, beaten up stocks rebounded considerably faster than bigger, less beaten up stocks. To illustrate the difference, Bespoke broke up the 500 stocks in the index into 10 groups, ranked according to how they performed during the bear market of Oct. 9, 2007, to March 9, 2009.
The worst 50 stocks during the bear market have outperformed by a huge margin, gaining an incredible 372 per cent over the past year (Bespoke doesn't mention names in this group, but they probably include Ford Motor Co. and American International Group Inc.). At the other end, the 50 stocks that performed the best during the bear market have risen just 31 per cent over the past year (think stable, defensive stocks).
"It's pretty hard not to have any gains since the market lows last March if you owned stocks," Bespoke said on its blog. "But to really be beating the market, you had to be willing to buy stocks that a lot of people thought might not even make it through the collapse."