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96 Percent: Most Stocks are Bad Investments

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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
5
10%
30
30%
50
40%
90
50%
1,092
100%

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. 



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