Fewer than 4% of American stocks produced all of the stock market's gains since 1926. The other 96% collectively did no better than cash.
Share of the net wealth created by the US stock market between 1926 and 2019, by company, ranked best to worst. Net wealth creation means returns above one-month Treasury bills. Hendrik Bessembinder studied all 26,168 companies ever listed.
Apple alone has created well over $2 trillion of shareholder wealth, more than any company in American history. General Electric earned its place decades ago and has destroyed value since, which is the point: the list keeps changing.
- Stock returns are lopsided in a way most people's intuition is not. A share can only fall 100%, but it can rise 10,000%, so a few enormous winners have to carry an enormous number of losers.
- And there are a lot of losers. Of the 26,168 US companies Bessembinder tracked, more than half had a lifetime return worse than one-month Treasury bills, and the single most common outcome was losing everything.
- Most listed companies do not survive long enough to compound. The typical stock in the study was listed for about seven years and then merged, was bought or went under.
This is the strongest practical argument for owning the whole market rather than picking. If your portfolio of twenty carefully chosen stocks happens to miss the handful that matter, and the odds say it will, you get the market's losers without its winners. Diversification is not a way to lower returns in exchange for safety; it is the only reliable way to guarantee you own the few companies that pay for everything else.