Dividend Aristocrats is the trademarked name that Standard & Poors uses for its list of companies that have raised dividends annually for 25 years or more. Needless to say, being able to not only part with cash, but a growing amount of cash, every year for the past quarter-century is an incredible accomplishment and is often a hallmark of the best businesses that have also outperformed the S&P 500 Index.

As a bit of a research project, I reviewed the histories of over 20 companies that are considered Dividend Aristocrats to determine both their long-term total returns and the number of years in which these stocks underperformed the S&P 500.

As you can see, even the best of companies spend a fair amount of time underperforming the index. If you were a holder of Colgate-Palmolive, which is one of the twenty best stocks you could have purchased in the entire world over the past half-century, you were able to compound your capital at a rate of 14.63%. But you know what’s the crazy part? Even Colgate-Palmolive underperformed either the Dow Jones or the S&P 500 (once it was created) in 26 of those years.

Even Wal-Mart, which singlehandedly drove the returns of the “Nifty Fifty” for a decade or two while it was rolling out locations across the American south and heartland, underperformed in 17 years during a time period in which was delivering blistering returns of over 17% annualized. Think about that. You were a part owner in a business that was absolutely trouncing the rest of corporate America, taking no prisoners in a numerically superior way, and you were still underperforming the market index almost a third of the time.

The numbers are even wilder when you look at utilities, industrials, and commodity firms like Consolidated Edison, Emerson Electric, Genuine Parts, Chevron, and ExxonMobil. For each of these companies, you were actually underperforming the relative index a majority of the time (let that sink in) even while you were earning superior returns.

It’s even wilder when you realize that these are the companies that are the best of what corporate America has to offer. If the greatest businesses in the entire world underperform the market a third or even a slight majority of the years, think about the consequences for people who own ordinary assets that compound at 6-8% such as the local bank or utility company. If you look at the old Kansas City Southern Railroad, there was decades of underperformance and then a manifestation of wealth when everyone realized it owned the Janus mutual funds and it went up so much in a three-year stretch that the fifty-year returns were almost 20% compounded despite the fact that 3 years out of 50 were responsible for the wealth creation.

This is why beating the marketing and compounding capital in general is quite difficult. If you are a professional money manager, your investors buy and large aren’t going to appreciate your ideas that outperform during the 2020-2030 range if you are gong to underperform by twenty percentage points in the first year or two. You are going to be fired before you get the chance to do so.

Or, if you an individual investor, you might be owning great assets but turning on the TV and seeing Netflix or Tesla going up by a greater amount per month than you’ve made in the past year or two and decide to abandon ship. Then, you get to experience having an asset bought at 200x earnings return to 20x earnings while someone who bought your old stocks finally gets the capital appreciation that would have been yours if you did not sell out too soon.

The good news is that there are ways to incorporate the short, bursting nature of sequence of returns to reduce the likelihood of it harming you. You can own two or three dozen different stocks, purchased across a period of years, that you decide to never sell and commit to realizing your wealth through the results of the business rather than trying to time a trade correctly.

To receive the historical compounding rates of approximately 10% or greater, your capital has to be committed for a decade or more. The absolute best wealth generators in the entire world underperform the market somewhere between a third and a half of the time that you own it. This fact must be acknowledged or you will find yourself perpetually shuffling between the latest fads. If you want your overall collection of assets to deliver strong returns, you must be preferred for sustained underperformance from quite a few of the individual components. Wealth creation is “spurty”—a decade of rewards can come in a single year or even less time.  You need to arrange your affairs so that you are still there when a delayed off comes.

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