Skip to main content

96 Percent: Most Stocks are Bad Investments

Photo of Person Holding Black Pen

Hendrik Bessembinder, finance professor from Arizona State University studied stock returns from 1926 - 2016, looking at all public companies listed on the NYSE, AMEX, and NASDAQ. He found that most stocks are weak investments. Many not even strong enough to put up a fight against Treasury bills.

Stocks as a whole have generated tremendous wealth. The total US stock market is worth over $30 Trillion. However, Bessembinder discovered most stocks don't contribute much. Most are under-performers that piggyback of the performance of a few key players (like group projects in school).

Just 4% of companies account for all stock market returns. While the remaining 96% failed to have much of an impact, their gains and losses washing each other out.

Approximately 25,300 companies were studied and a small number of top performers account for a disproportionate percentage of the market's return.

# of Top Performing Companies
% of Market Return

The top 5 wealth creating companies:

Top 5 Performing Companies
Market Capital 
1. Exxon Mobil
$1.002 trillion
2. Apple
$745.7 billion
3. Microsoft
$629.8 billion
4. General Electric
$608.1 billion
5. IBM
$520.2 billion

If you invested in these top performers early on, you would've made a tremendous return. But as we know, picking stocks is incredibly difficult. No one knows which companies will emerge on top in the next 30 years. They might not even exist yet.

The odds are heavily stacked against you. However, your odds of successful investing are strong when you forgo betting on individual stocks and bet on the market as a whole. With a total market index fund you'll be able to capture the market return. You end up buying up all the losers but you also own all the winners, who've shown they can more than make up for their weaker counterparts. Instead of looking for the needle in the haystack, do as John Bogle said and just buy the haystack. 


Popular posts from this blog

The Art of Giving Feedback

Constructive feedback is an awkward affair. You don't want hurt feelings, but recognize the importance of honesty. You've tried the classic "hoping things will get better on its own" and unfortunately it hasn't played out. When giving feedback, here are a few things that I try to keep it mind. Start with empathy. Step into their shoes and understand their story. If you don't know, ask. Be genuinely curious. Feedback is a dynamic affair. Shared communication with a shared goal towards progress. Take the emotion out of it. Focus on the situation, not the person. Focusing on the person adds unnecessary weight to an already emotionally-bloated event.  Be specific. Give clear examples. Vague feedback equals dismissed feedback.  Doing above won't de-awkward things fully, but it will dampen it and increase the chance of better outcomes. 

ELI5: The Stock Market

Today we get back to basics and answer some of the most common questions about the stock market.

Step One is Knowing

In school, we listen to our teachers. At home, our parents. Throughout our childhood, following instructions is praised and rewarded. When we're young, there's value in this. We don't understand how the world works quite yet, so guidance can be lifesaving.  The bias to just accept obviously has drawbacks. Insert old jumping off a bridge adage .  This conditioning is especially strong for kids from lower income households. Their parents are more likely in working class jobs involving strict order-taking. Parents of middle-class households tend to be knowledge workers where influence is essential.  Studies have shown kids from middle-income households are more willing to negotiable with their teachers. They learn from their parents that things are not set in stone. This leads to better grades and learning outcomes when compared to their lower income counterparts who don't negotiable.  In business, if we simply accept things as they are, we would never innovate. In work, w