I transcribe Ben Felix's speech (BSc Mechanical Engineering (Northeastern University), MBA Finance (Carleton University), CFA, CFP, CIM) starting from 8:33. I just screen shot his animation, rather than taking the time to create a GIF out of it.
But growth in aggregate corporate earnings does not directly benefit investors. It is increase in earnings per share that benefits investors. The problem here is that per share earnings growth can only keep up with GDP growth, if no new shares are issued.
Let me explain. If you own shares in a company in a rapidly growing economy, and a new company listed shares on the stock exchange, you don't benefit from the new company's economic impact. You'd need to re-allocate some of your capital to the new company, to participate in its earnings. But doing so does not increase the value of your portfolio. The economy is grown, but your portfolio has not. Over time, the effect of this slippage has been meaningful.
China might again be a good example. Much of the growth in the market value of Chinese equities has come from an increase in the number of listed companies, as opposed to price appreciation from existing listed companies.
Please see the titled question.
I don't fathom the boldened phrase. What if company B's share price rockets faster than company A's? Wouldn't company B's faster rate of share price increase increase my portfolio's value?