Among other things, it will assuage the fears of even the most conservative investor, conclusively showing that a buy-and-hold strategy of investing in a diversified portfolio of stocks and bonds is the best way to amass wealth over long time horizons.
What I found most interesting though was a discussion on the gap that exists in our world between population concentration and wealth allocation. That is, just because a nation has lots of people, doesn't guarantee that it will be wealthy. In fact, quite the opposite appears to be true. In the book, the author publishes three graphs, breaking up various nations and regions in the world. One pie chart shows each nation/region as a percentage of world population, one as each nations' GDP as a percentage of world GDP, and one as each nations' total market capitalization of listed public companies in their national stock exchanges as a percentage of total world market capitalization of public companies.
The graphs show the substantial disparity between wealthy and poor nations, particularly between that vague dividing line of developed and developing nations. But because the data is a bit old, I decided to update it. I accessed World Bank, UN, IMF, and OECD data to compile the most accurate graphs I could on the same basis but for 2010, not 2005 as was done in the book. Considering how much the BRIC countries (Brazil, Russia, India, China) have grown in that time I thought maybe some things have changed. How wrong I was.
The above graph shows various nations/regions in the world, with their corresponding percentages of population, market capitalization of public companies, and GDP. As you will see, some of the least populous nations have the most wealth, the US and Western Europe standing out most starkly. China, with almost 1/5 of the world's population, contains less than 10% of its GDP and equity capital. Africa contains 15% of the world population but only roughly 2.5% of both GDP and equity capital.
Highlighting the discrepancy further, the above graph shows the same data but lumping the nations of the developed world and those of the developing world. You can see from this graph that the developed world contains only 15% of the world population, but contains over 70% of its equity capital and over 60% of its GDP.
Finally, if you normalize each data point by population it gets really interesting. Little Hong Kong actually skews the whole graph. This small, densely populated region of the world contains A TON of the world's equity capital, creating $350 000 of market capitalization for each citizen within its borders. Of course, that makes sense for an island that is essentially one big stock exchange. But you'll see that the developing nations almost drop off the screen and the data are very stark to look at in raw form. The lowest of the developed regions, Singapore and South Korea, sit around $25000 GDP per capita with Eastern Europe, the closest of the developing regions coming in at only $8500.
I'm proud to see my home nation on there punching well above its weight. Canada has the second highest GDP per capita of the listed regions and the highest market capitalization per capita, excluding Hong Kong. (As an aside, if you compare the market capitalization of the Toronto Stock Exchange per capita in the Greater Toronto Area to that of the Hong Kong Stock Exchange per capita in Hong Kong, Toronto wins!)
Of course the causes of the above data are well beyond the scope of this discussion. I just think the data itself is interesting and raises challenging questions. Hope you enjoy it as well.
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