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Roughly 26,000 stocks have been listed on exchanges here in the U.S. since 1926. How many created wealth for shareholders?
1,092.
That’s it. Only 4% of U.S. stocks created all the wealth.
Wealth creation, in this post, means the returns on a stock above the return on 30-day Treasury bills. The finding comes from Hendrik Bessembinder at Arizona State, who did what any reasonable person would do: analyze every single U.S. stock since 1926 to see which ones actually made money when compared to the safest asset available, Treasury bills.
Apparently, no one before Bessembinder bothered to collect the data and do the math. Which is a little surprising, knowing professional stock-pickers have been trying to deliver market-beating returns all this time.
Think about that for a minute. The financial industry sold stock-picking strategies for decades without anyone checking what percentage of stocks actually win. Maybe that makes sense. Perhaps they didn’t want their customers knowing just how long the odds are. The real head-scratcher is the champions of stock indexing - Vanguard, BlackRock, and State Street - also never published research like this.
At least Powerball knows the math behind its games.
Which means the smartest strategy might be the simplest one: just buy everything. Own all the listed stocks, including the 96% that will do nothing for your portfolio, because that's the only way to guarantee you'll catch the 4% that matter.
My Stocks Stink…and So Do Yours
Here are the highlights from Bessembinder’s comparison of returns from individual stocks in the United States from 1926 to 2019, in his paper, “Do Stocks Outperform Treasury Bills?”:
“The majority of common stocks that have appeared in the Center for Research in Security Prices (CRSP) database since 1926 have lifetime buy-and-hold returns less than one-month Treasuries.”
“...the best-performing 4% (1,092 stocks) of listed companies explain the net gain for the entire US stock market since 1926…”
Keep in mind, one-month Treasury bills are considered the safest asset available. Right now, their yield is a little over 4% but in stretches over the last two decades, bills paid below 1%!
Bessembinder then looked at global stocks. Sadly, a lot less data was available - the time period of the global data for individual stocks he collected for this study was 1990 - 2020.
He looked at global stocks and compared them to U.S. stocks for the same time period:
“55.2% of U.S. stocks and 57.4% of non-U.S. stocks, underperform one-month U.S. Treasury bills in terms of compound returns over the full [time period].”
“The top-performing 2.4% of firms account for all of the $US 75.7 trillion in net global stock market wealth creation from 1990 to December 2020. Outside the US, 1.41% of firms account for the $US 30.7 trillion in net wealth creation.”
When Bessembinder looked beyond the U.S., the pattern held with amazing consistency. Sixty-four thousand stocks across 42 countries, 30 years of data, and the same result: an incredibly small number of stocks account for all the wealth created for investors.
This isn't a phenomenon about U.S. companies. It's not a quirk of our markets. It's how stock markets work, everywhere.
You'd think someone would have done the math earlier.
Buy and Hold - Everything
In 2024, Bessembinder did a follow-up study on U.S stocks. titled, “Which U.S. Stocks Generated the Highest Long-Term Returns?” He reviewed returns from 1926 through 2023.
Remember, his first paper found that 4% of all U.S. stocks listed since 1926 - that’s 1,092 stocks - generated all the wealth for investors.
This time, he calculated cumulative returns and compound annual growth rates. For the 17 stocks that generated the most wealth:
All of them returned at least $50,000 for every $1 invested, assuming you invested that $1 when these stocks were initially made available on a stock exchange.
However, the compound annual returns for the combined 17 stocks was only 13.7%, meaning the length of time the company survived was the key component delivering wealth to investors.
Compare that 13.7% compound annual return to the historical return from U.S. stocks of about 10%. You might be tempted to say the difference between 13.7% from those 17 stocks that delivered the most wealth and the 10% compounded annually from an index like the S&P 500 is not a big deal.
$1 compounded at 10% for 70 years (an investing career) would give you $790. That same $1 compounded at 13.7% over 70 years works out to just over $8,000! That’s about ten times as much.
But professional fund managers have been trying for decades to find returns that beat the return of just holding every stock or the S&P 500. The data shows they have not consistently been able to do this, especially after deducting their fund management fees.
According to Barron’s which cites S&P’s SPIVA data, “Over the past 15 years, 88% of large-cap stock funds underperformed the S&P 500, while 93% of funds did so over 20 years.”
Unless you feel you can identify any of these wealth-creating stocks - and not mistakenly pick stocks that won’t deliver poor returns - then you may as well buy and hold every stock.
What Does All This Mean?
So what does all this mean for you and your long-term investments?
Funds that focus on a specific factor, such as momentum, quality, or dividend growth have a baked-in disadvantage to delivering returns that would meet or beat the S&P 500 or a total U.S. stock fund. Why? Because so few stocks account for all the wealth built by stocks, funds excluding the potential to include those few wealth-building stocks hobble themselves and impair your returns.
All this adds up to buying and holding the equity index funds that hold everything - total U.S. stock funds and total ex-U.S. international stock funds - rather than funds that focus on particular selection criteria such as dividend growth, single countries, factors such as quality, momentum and so on.
Wrapping Up
The top 2.4% of stocks worldwide create all the wealth. After decades of trying, no one—not brokerage firms, mutual funds, active ETFs, or random writers on Substack—has found a repeatable way to identify them in advance.
The evidence points to one conclusion: buy everything. It's not exciting. It won't make you rich quickly. But it's the only strategy that guarantees you'll own the winners.
The real question isn't whether to index. It's why it took until 2018 for someone to do the math that proves it.
Sources:
“Do Stocks Outperform Treasury Bills?” Hendrik Bessembinder, Department of Finance, W.P. Carey School of Business, Arizona State University
May 2018
“Long-term shareholder returns: Evidence from 64,000 global stocks”
Current Draft: March 2023
Hendrik Bessembinder
W.P. Carey School of Business, Arizona State University
Te-Feng Chen
School of Accounting and Finance, Hong Kong Polytechnic University
A. Goeun Choi
B. Freeman School of Business, Tulane University
K.C. John Wei
School of Accounting and Finance, Hong Kong Polytechnic University
“Which U.S. Stocks Generated the Highest Long-Term Returns?” Hendrik Bessembinder, Department of Finance, W.P. Carey School of Business,
Arizona State University
Current Draft: November 2024
Daepp MIG, Hamilton MJ,
West GB, Bettencourt LMA. 2015
“The mortality of companies.”
J. R. Soc. Interface 12:20150120.
http://dx.doi.org/10.1098/rsif.2015.0120