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I wrote this article below in 2023.
There’s new data today, and it’s even more interesting. The result is clear: Good luck picking individual stocks over the long run.
Researcher Henrik Bessembinder published a new study on the history of the U.S. stock market. Some of the most interesting facts from Bessembinder’s paper are:
- He looked at data for 29,081 stocks that were publically traded at some point between 1926 and 2025
- The full data set yields a compound average return of 10.1% per year
- Only ~48% of the stocks generated a positive return.
- Only ~41% of the stocks generated a return greater than one-month Treasury bills (the “risk-free” return)
- Only ~28% of the stocks outperformed “the market”
Bessembinder then introduces a term he calls “Shareholder Wealth Creation” (SWC), with a few small twists on classic performance data. But by and large, SWC is simply a way of measuring how stocks create wealth for their investors.
The total SWC through 2025 across the 29,081 companies over the last 100 years totaled to $90.96 trillion. The data here is amazing.
- Only 46 companies (out of 29,081) account for 50% of that $90.96 trillion. That’s 0.16%.
- And 1082 companies account for 100% of the $90.96 trillion. That’s 3.72%.
How can 3.72% of companies create ALL the wealth in the stock market?
Let’s start with the worst companies. Bessembinder found that 17,197 companies reduced shareholder value, and did so by a total of $10.67 trillion. So we’re below zero.
It then takes the next 10,802 decent companies to generate a positive $10.67 trillion, bringing the net value creation back to zero.
Summing those two groups, we have 27,999 companies “generating a total of zero net wealth enhancement, as they collectively match Treasury bill outcomes.”
That leaves the remaining 1,082 best companies in the study, which account for all $90.96 trillion of net positive wealth creation.
The most charitable conclusion here is that:
59% of the haystack is rotten, but at least 41% of the haystack is semi-decent, with a sliver of that 41% being outright great.
59% though! That’s not good.
But I think the better, more realistic conclusion is that:
96% of the haystack is a waste of time. Less than 4% provides a true return on investment.
The stock market has few needles. Missing out on them negates the purpose of stock investing in the first place. Your best bet – literally – is buying the whole haystack.
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