The US Stock Market

Hendrik Bessembinder from Arizona State University just released an update to his paper 100 years in the U.S. Stock Market.

If you don’t want to read it here are the highlights:

While the cross-stock mean buy-and-hold return is over 30,000%, the median is -6.9%.

Shareholders’ wealth was enhanced by $91 trillion over the century, but long-term investors in nearly 60% of stocks incurred wealth reductions.

Over the 1926 to 2016 period studied in Bessembinder (2018), 89 firms accounted for half of the $43 trillion in net wealth creation … (in the) recent nine years, just 46 firms account for half of the $91 trillion.

What this says is what I have been telling people for 25 years now. Namely “investing” is stupid. You invest in the private sector. Not the public sector. You speculator and trade in the public sector or you under perform.

While the database spans 100 years, the mean time period that a stock is included in the database is 11.7 years, while the median is just 6.8 years.

As I have said numerous times.

The negative median reflects that only 48.22% of stocks generated a positive buy-and-hold return.

Positive skewness arises in part because there is no ceiling on the potential magnitude of positive returns, while as long as legal systems incorporate limited liability, no return can be less than -100%.

One striking observation that can be drawn from the data in Table 1 is that the highest cumulative returns delivered by individual common stocks are attributable to annualized returns that are only moderately high.11 The median annualized return across the thirty stocks listed on Table 1 is 13.02%, while the mean is 13.00%.

The highest annualized compound return in this group is 37.04% per year, earned Nvidia shareholders during the 27 years from the firm’s January 1999 IPO through the end of the sample.

Timing is EVERYTHING.

What is even more interesting as that the majority of the returns come quickly and are caused by extraneous effects. Money printing, etc.

Less than half of stocks outperform their own value weighted average at the decade horizon overall (35.62%), and in every individual decade except 1936-45.

Only coming out of a DEPRESSION. Sorry for the all-caps but that points needs to hammered home.

…with the largest SWC outcomes for the full 1926-2025 sample. Apple is ranked first, with $5.02 trillion in wealth creation, followed by Nvidia with $4.58 trillion, Microsoft with $4.03 trillion, Alphabet with $3.57 trillion, Amazon with $2.27 trillion, and Broadcom with $1.60 trillion.

The majority of recent high returning stock’s returns are due to excessive money printing and share repurchases and accounting tricks involving stock options i.e. manipulation of the float.

The market exists to sell shares and that’s all it exists for so stocks will always trend to zero eventually. And the stock market is where companies go to die.

Some stick around for awhile. But, they will all eventually die.

-AJ