Unconventional wisdom: Lessons from a century of returns
Sobering research shows how hard it is to find the right shares.
Conventional wisdom is a byproduct of groupthink that presents solutions good enough for the average person while simultaneously not being right for any individual. You follow it at your peril. Each Monday I will challenge the investing norms that just may be holding you back from living the life you want.
Unconventional wisdom: Lessons from a century of returns
“I don’t mind going back to daylight saving time. With inflation, the hour will be the only thing I’ve saved all year.”
- Victor Borge
If you are like me and hold individual shares in your portfolio there is a sobering study you can’t afford to ignore.
I’ve written about Professor Hendrick Bessembinder’s research before. The latest iteration shows that finding a share that outperforms the return on cash is more like getting a winning lottery ticket than most investors care to admit.
Even more concerning – it is getting harder.
One hundred years of returns
The latest version of One Hundred Years in the U.S. Stock Markets extends Bessembinder’s previous research to include all 29,754 US listed shares between January 1926 and December 2025.
Bessembinder calculated the return a buy and hold investor would have earned holding each listed share if dividends were reinvested over the century.
The shares would change frequently as new IPOs, bankruptcies, and mergers and acquisitions changed the population of US listed shares. Over the last 100 years the average share was listed for 11.7 years while the median listed time is 6.8 years.
When the average is higher than the median, the data is considered positively skewed. This means a few outliers are pulling the average higher. The large the skew the bigger influence of outliers. In this case, some companies have long lives, but most aren’t publicly listed for long.
The return the buy and hold investor earned is impressive as one dollar invested in January 1926 would be worth $15,041 at the end of 2025. On an annual basis this works out to 10.10% a year.
This return differs from an index return which generally is made up of only a portion of the total population of shares and often weights the index by market capitalisation. Don’t confuse Bessembinder’s data with index data.
However, the data from Bessembinder shows the average return of an American share over a century. This allows a comparison to be made between the average return and the return of each individual share.
You might conclude given the 10.10% annual return that most shares do well. You would be wrong.
Most shares do poorly
The median buy and hold return for an American share is -6.87%. The data is once again positively skewed as the average is meaningfully higher than the median. Only 48.22% of all shares generated a positive buy and hold return.
Given that most shares had a negative return, finding a share with a positive return is a good thing. But investors have other choices. One choice is to not invest which is effectively earning a short-term US Treasury bill return. Bessembinder also compared share returns to the returns from Treasury bills.
Investing $1 in Treasury bills over the last century would result in a final value of $25.34. That equates to a 3.30% annual return. Only 41.17% of total shares earned a higher return than the Treasury bills.
The data shows most shares don’t earn high returns or even positive returns. The average returns are pulled up by the outliers. Digging into these outliers yields some interesting insights.
The following chart shows the 30 shares that generated the highest values from a $1 investment over the last century. In other words, these shares created the most investor wealth.
The average return of these top 30 shares is only 13.03% and the median is 13%. In this group there are few outliers. The average return is higher than the average return of the overall population - but not dramatically higher.
The relatively small gap between the average return of 10.10% and 13.03% shows that returns typically revert to the mean. Some shares may generate extremely high returns for a short-period but they come back to earth.
Still, it was these shares that dragged up the overall outcomes achieved by investors. They did this by compounding a slightly higher return over a long period. The average listing duration of these 30 shares was 93.9 years. Only three shares are no longer listed.
The market is changing
The following chart shows the evolution of the market across each decade included in Bessembinder’s study.
Comparing the first six decades of the century and the last four decades shows how the market is changing.
Returns are becoming more skewed and the percentage of companies with returns higher than zero and more than a Treasury bill are declining. This makes it harder for investors to find these firms.
There are several factors that may have contributed to this shift. Enforcement of anti-trust laws has slackened which leads to a winner take all economy. Companies have grown larger and control more market share.
Scale has benefited the larger companies. There has also been a shift in the type of companies. Technology is inherently more scalable than manufacturing which increases the benefit of scale.
The rise of passive investing has also likely played a role. A passive investing in a market capitalisation weighted index funnels more money into the largest firms. This lowers their cost of capital while raising it for their smaller competitors. It is also adds to their share market returns.
Three lessons from Bessembinder’s study
Lesson one: You don’t need all your shares to do well to have a successful outcome.
Bessembinder’s latest study showed that while most shares failed to earn a positive return or outperform a Treasury bill the overall outcome achieved was strong.
There are two ways for an investor to interpret this data. One interpretation is to stop trying to pick individual shares. Logic dictates if a small amount of the overall share population drives most of the return outcome it is very hard to pick those shares. This suggests owning all the shares through a passive strategy is a better approach.
However, if you are going to pick individual shares the data shows that all your picks – or even most of your picks – don’t need to outperform to get a successful outcome. Returns outcomes can be positively skewed by a few of the shares doing very well.
Lesson two: Don’t chase performance
The annual returns of the largest wealth generators of the century were higher than average - but not meaningfully higher. When you add the element of time to returns a few percentage points better than average the results are impressive.
The lack of dramatic outperformance on the list shows that while shares can have great performance for shorter periods of time, eventually returns revert to the mean. If you are constantly chasing performance you may miss the high returns and get in just in time for the reversion.
Lesson three: Small differences matter
This same insight shows how important small differences can make. As Bessembinder points out Altria’s annual return of 16.53% is 1.18 times as large as Vulcan’s 14.35% outcome. However, cumulatively Altria generated 8.81 times more wealth.
Finding the steady performers matters more than you think. Avoiding anything that detracts from returns like fees, transaction costs and taxes are also critical over the long term. Don’t discount the impact of small differences.
Shares your thoughts and email me at mark.lamonica1@morningstar.com
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What I’ve been eating
I’ve been waiting for this meal since my last visit two years ago. Sushi Kobikicho Tomoki is a little different than than most of the high-end sushi places that allow foreigners. It has more of a neihbourhood feel – even if that neihbourhood is Ginza – and a more local menu.
The remaining 7 spaces at the sushi counter were all occupied by Japanese regulars who all made bookings for their next experience at the conclusion of the meal. The omakase is a character-building experience and lasts over three hours. I stopped counting after 25 pieces and staggered out of there in a happy fish trance. Pictured is horse mackerel which was a highlight.
