Own the future, don’t predict it
We are often told that stocks are the best long-term investment. A dollar invested in the US stock market in 1926 grew to more than $14,000 by the end of 2025, equivalent to a return of 10.1% annually, comfortably outpacing both short-term deposits and inflation. The premium of stocks over deposits and inflation holds true for nearly every country’s stock market.
However, research by Hendrik Bessembinder of Arizona State University challenges a common assumption about equity investing. While the stock market as a whole has been a great investment, most individual stocks failed to outperform short-term deposits.
Source: Morningstar
Bessembinder looked at the returns of 29,754 US-listed companies from 1926 to 2025. He found that the median stock generated a return of minus 6.9%. Only 48% of companies produced positive returns and only 41% outperformed short-term deposits. The wealth created by the stock market over the last century was not generated by the median company, but by a tiny minority of extraordinary winners.
Less than 4% of firms accounted for all shareholder wealth creation, while just 46 companies – around one in every 650 – generated half of the $90.96 trillion of wealth created in the US stock market. This is illustrated in the striking chart below. The number of firms is shown on the left-hand axis and the wealth created for shareholders on the right.
Source: Morningstar
It makes intuitive sense that the life of a company is limited. A company might manufacture steam engines, valve radios or mainframe computers, but very few businesses escape the cycle of growth, maturity and decline. Competition and innovation eventually take their toll.
Perhaps more surprising is the extent to which most stocks fail to create meaningful value for shareholders. Investors understand that some stocks perform better than others but may not appreciate that most individual stocks deliver disappointing long-term outcomes. A handful of spectacular successes, together with a larger group of modest winners, more than compensate for a long tail of stock market losers.
Source: Morningstar
What is true for the US appears to be true elsewhere. Bessembinder examined more than 64,000 stocks across global markets between 1990 and 2020 and found a similarly concentrated pattern of wealth creation. One notable observation was that 35 of the 50 best-performing companies came from the United States. Only one came from the Middle East – Saudi Arabian Oil – and none came from the UK. Scotland, however, can claim one of the world’s most value-destructive companies during the period: Royal Bank of Scotland.
The list of worst-performing companies is also informative, being heavily populated by Japanese firms. This highlights the importance of start and end dates when analysing investment returns. The study began in 1990, at the peak of Japan’s economic bubble, and concluded in 2020, before Japan’s most recent market resurgence. Had the analysis begun a decade earlier or later, or extended to 2025, the rankings would likely have looked very different.
For some, Bessembinder’s research appears to make investing easy: simply buy today’s winning stocks and assume they will continue to outperform. This is a dangerous conclusion. The best-performing companies at the end of 2025 may not be the best-performing companies over the next decade.
Indeed, when Bessembinder conducted his original research using data up to 2016, the leading wealth creators were Exxon, Apple, Microsoft, GE and IBM. By the end of 2025, the list had changed significantly, with Nvidia, Apple, Microsoft, Alphabet and Amazon occupying the top positions.
Some mathematicians have noted that the pattern observed in Bessembinder’s research resembles the outcomes generated by Monte Carlo simulations. Small differences in outcomes compound over time, producing a highly skewed distribution consisting of a few extraordinary winners and many losers. Investors rightly believe that skill, innovation and competitive advantages matter, but chance plays a role as well. We should always be mindful of the danger of being fooled by randomness.
This strengthens the case for broad global diversification. If a relatively small number of companies account for most long-term wealth creation, investors need to ensure they have exposure to those businesses wherever and whenever they emerge. A diversified global equity portfolio provides the opportunity to participate in the next generation of successful companies without requiring investors to identify them years in advance
However, broad market exposure and active management need not be opposing approaches. The evidence suggests that identifying tomorrow’s exceptional companies is difficult, particularly in large, heavily researched markets where information is widely available. Yet not all markets are equally efficient, and there are areas where specialist knowledge, deep research and a differentiated approach may help uncover opportunities that are less widely recognised by the broader market.
Our approach is therefore to combine both disciplines. We believe a low-cost, diversified global equity allocation should form the foundation of portfolios, providing broad participation in global wealth creation, while carefully selected specialist managers complement that core in areas where active management may be better rewarded.
For all investors, the most valuable lesson from Bessembinder’s research may be humility. Successful investing requires both skill and good fortune, and predicting the future remains exceptionally difficult. Rather than relying on a single stock, manager or investment theme, a disciplined approach built on diversification, sensible costs, selective active management and long-term thinking provides a more robust path to achieving investment success.
Another conclusion is that capitalism remains alive and well. Competition ensures that most companies’ advantages are temporary, today’s champions are continually challenged by innovation, and new winners emerge over time. The challenge for investors is not predicting tomorrow’s winners, but owning tomorrow’s winners today.
Please be aware that the value of investments may go up or down and you may receive back less than you invested originally. Past performance is not a guide to the future.
This document contains general information only and does not provide any advice or guidance specific to your personal circumstances.
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