Based on the research of Hendrik Bessembinder, this infographic reveals how a tiny fraction of companies drives the entire market's growth, challenging conventional wisdom and highlighting the critical role of diversification.
(1926 - 2019, relative to Treasury Bills)
While the aggregate market has generated immense wealth, the journey of an individual stock tells a dramatically different story. This massive gain is not a reflection of widespread success, but rather the outsized impact of a select few.
Contrary to popular belief, investing in a single, random stock is more likely to underperform the safest government debt. The data shows that from 1926-2019, the majority of stocks failed to create any wealth for shareholders.
The massive gap between the average (mean) and typical (median) lifetime return reveals the market's secret: a few astronomical winners pull the average way up, masking the reality that the typical stock is a poor performer.
Median Lifetime Return
-8.05%
(The 50th percentile stock)
Mean Lifetime Return
+22,840%
(The mathematical average)
The entire net gain of the U.S. stock market since 1926 can be attributed to just the top-performing 4% of companies. This illustrates that capturing market returns is not about picking an average stock, but about ensuring exposure to these rare, hyper-successful outliers.
The concentration of wealth in a few top firms is not just a historical fact; it has intensified in recent years. A handful of technology giants were responsible for a staggering portion of all market wealth created between 2017 and 2019, highlighting a "winner-take-all" dynamic.
Share of Net Wealth Creation by Top 5 Firms
(From 2017-2019)
While Technology firms have created the most wealth in absolute dollar terms, other sectors like Telecommunications and Healthcare have created wealth disproportionately to their size in the market, punching well above their weight.
The greatest long-term wealth was not generated by stocks with explosive, short-lived returns, but by companies that delivered moderately high returns compounded over many decades. This affirms the power of long-term holding.
| CategoryHighest CUMULATIVE Return | Example FirmAltria Group Inc. | Annualized Return16.29% | Duration98 | Result$1 -> $2.65 Million |
| CategoryHighest ANNUALIZED Return | Example FirmGemini Energy Corp. | Annualized Return526.17% | Duration1.27 | ResultShort-lived; delisted |
The core takeaway is the necessity of broad diversification. Since it's nearly impossible to predict the few "home run" stocks in advance, holding a wide basket of stocks is the most reliable way to ensure you capture their powerful returns.
The research provides a statistical explanation for why most active managers underperform. Concentrated portfolios, by definition, have a high probability of missing the few stocks that drive the market's overall returns.
The most exceptional long-term wealth creators were not short-term high-flyers but steady compounders over decades. This underscores the power of a long-term investment horizon and patience.