Most Individual Stocks Lose Value, but Taken as a Whole the Market Creates Wealth
If you need to cross a small lake, a single, empty milk carton will not do you much good. By itself it barely has enough buoyancy to keep your head above water.
But if you can get a hundred empty milk cartons, and a roll of duct tape to hold them together, you can eventually construct a watercraft that’s stable enough for you and a friend to paddle high-and-dry for hundreds of yards. In fact, milk carton boat races have been proving this method works for more than 50 years.1
A similar principle holds true when it comes to investing in stocks. By itself, the typical stock is likely to lose value. However, when taken as a whole, the stock market has consistently beaten inflation and created wealth over extended time periods.
Hendrik Bessembinder, a business professor at Arizona State University, sought to answer the very practical question, “Do stocks outperform U.S. Treasury bills?” In other words, are they really worth the risk? To research this, Bessembinder and his team analyzed the performance of every single common stock listed in the last 100 years—all 29,754 of them.2
They found that, for the majority of stocks, the answer to their question was no. More than half (59%) of stocks failed to beat Treasuries over their lifetime. Put another way, the compound buy-and-hold return to the entire U.S. stock market over the past century was 1,504,057%. Yet the median stock lost money.
And just 28% of the stocks in the study outperformed the market as a whole. In fact, fewer than 4% of all stocks were responsible for the lion’s share of gains created since 1926.
So why not just buy these winners? Because they’re almost impossible to identify beforehand. For example, 19 of the top 30 wealth creators from 2017 to 2025 had not appeared in the top 30 list before 2016. These included names like Nvidia, Tesla, and Eli Lilly.
Also, Bessembinder’s study shows that it pays to hold stocks long-term, but only when invested broadly. Holding a single, poorly performing stock for a long time simply locks in long-term loss.
The analysis showed that the “risk premium” (potentially being rewarded for taking on risk) is real, but not at the level of individual stocks. The most probable expected reward only shows up when holding a diverse portfolio. Just like our milk carton example. One empty carton makes a lousy boat. But strap a bunch of them together and you’re easily afloat.
There’s no way to predict what the next century will hold for investors. But the lessons from the last one are clear. The prudent investor is one who owns a broadly diverse portfolio, believes that no one can reliably predict winners, and shows patience through the market’s inevitable ups and downs.
Applying these time-tested principles to your unique situation is something your trusted advisor is specially equipped to do.
Sources:
1. https://www.royalrosarians.com/100307/Page/Show?ClassCode=Page&Slug=milk-carton-boat-race
2. https://www.wealthmanagement.com/investing-strategies/a-century-of-stock-market-winners-and-why-most-stocks-failed-to-deliver
IMPORTANT INFORMATION
This is for informational purposes only, is not a solicitation, and should not be considered investment, legal or tax advice. The information has been drawn from sources believed to be reliable, but its accuracy is not guaranteed and is subject to change. Investing involves risk, including the possible loss of principal. Past performance does not guarantee future results.
AssetMark, Inc. is an investment adviser registered with the U.S. Securities and Exchange Commission. Securities products and advisory services offered through Park Avenue Securities LLC (PAS), member FINRA, SIPC. OSJ: 6115 Park South Dr., Charlotte NC 28210. Phone # 704-552-8507. PAS is a wholly owned subsidiary of The Guardian Life Insurance Company of America® (Guardian), New York, NY. Genesis Wealth , LLC is not an affiliate or subsidiary of PAS or Guardian. This material is intended for general use. By providing this content Park Avenue Securities LLC and your financial representative are not undertaking to provide investment advice or make a recommendation for a specific individual or situation, or to otherwise act in a fiduciary capacity.
This material was produced by an independent third party. It is provided for informational and educational purposes only. The views and opinions expressed herein may not be those of Guardian Life Insurance Company of America (Guardian) or any of its subsidiaries or affiliates. Guardian does not verify and does not guarantee the accuracy or completeness of the information or opinions presented herein. 7727964.28 exp 7/28