The Importance of Data

It can’t be underestimated how important good data is. In the age of fake news, social media feeds and media speculation, it can be hard to know what to believe, but good, accurate data, can make it easier to see through the noise.

You will have to excuse the rather tenuous link here, but two things this week have made me reflect on the importance of data.

The first is to do with my personal health. I was scrolling through the Apple health app the other day when I had a few moments as my computer was doing an update. What I discovered was a very interesting chart on my average resting heart rate, not just recently, but over the past few years.

Now, I have always been fairly into my fitness and generally (in the pre-lockdown era) managed around 4/5 workouts a week. If I look at my resting heart rate average from the beginning of the data I have available (coinciding with my first Apple Watch purchase in January 2018), it has always been in the reasonably respectable range of 58-61 – not too bad.

However, what really surprised me was the change since March (the start of lockdown). As lockdown began, I had a little more time for exercise, so I have been doing longer sessions and more of them. Since the middle of March, there has been a very significant and notable trend downwards and now, as of the end of July, my resting heart rate is consistently in the range of 50-54.

Now that may not sound like much, but it is a significant change in the right direction and is a noticeable sign of the impact that greater exercise duration and intensity has had on my physical wellbeing. I wonder what other insights could be gleaned if we all looked at our fitness trackers and the data they produce in more detail.

The other surprise that I gleaned from good data this week was during our investment committee meeting with Square Mile. A lot has been said and written about the market crash and then recovery over the course of the Covid-19 pandemic and many people have been shocked by the speed of the recovery, especially in the US market.

When you interrogate the data, however, things start to make more sense.

If we look at the global stockmarket (as measured by the MSCI World Index), we see that it has produced a circa 43.9% return over the past 5 years – not too shabby.

However, it is the way that this return is attributed which is shocking.

For a start, the US market has produced 83.7% of those total returns – this means that the US has been responsible for more than 4/5ths of the total global returns.

That in itself is quite stark, but the data goes deeper. If we interrogate the return of the US index, we can see that the top 10 stocks within the US market make up around 56% of the total US return.

Putting it another way, the top 10 companies in the US have accounted for around a third of total global returns.

Taking it one step further still, we can see that just 3 companies – Apple, Microsoft and Amazon make up over 23% of that total US return.

So in summary, the US makes up 83% of the total return in the world over the past 5 years, the top 10 companies account for around half of that return and the top 3 companies account for nearly a quarter of it.

Apple alone accounted for 8% of the total global stock market returns over that 5 year period.

This just goes to show how reliant we are becoming on these major tech giants.

Another very interesting fact is that, despite the US markets being back at (or very close to) record highs, the growth has been more concentrated than ever. If we look at the S&P 500 (the top 500 companies in the US market) year to date, only 10 of them have grown in value, meaning that the other 490 have fallen. However, the growth in those top 10 (again, mostly the big technology companies) has been enough to offset (and then some) the falls in the other 490 – quite amazing!

When you look at data like this, it gives you an interesting new perspective into the shape of the global economic recovery and this just goes to show just how concentrated it has been.

Read into it what you will, but it certainly gives a different perspective on things and perhaps it explains the seemingly irrational growth in the US market especially.

You see, although the market is growing, the vast majority of companies aren’t. It is just that the growth on those top 10 (only 2% of the total) is outweighing the losses on the other 490 (the other 98%).