What If You Don’t Invest In The Best Stocks?

When you review the history of the American stock market from 1926 through the present day, you will find that nearly all of the gains came from just 4% of the publicly traded businesses in existence. For most of the 20th century onward, someone who held shares in Exxon, AT&T, General Motors, IBM, and Apple could claim to represent a meaningful chunk of the stock market.

The data on the poor performance of most stocks ignores the reality that most good businesses merge into the industry titans once they have been successful for a long time and the additional reality that many stocks are too small to provide a meaningful to the S&P 500 performance which is valued at $20.5 trillion.

This data point has been profiled in the working paper of Professor Hendrik Bessembinder at Arizona State University whose work has the non-ironic title “Do Stocks Outperform Treasury Bills?”

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