Young & Invested: Why stock picking is harder than ever
Many investors still bet on being the exception in this winner-takes-all market.
Welcome to my column, Young & Invested, where I discuss personal finance and investing for Gen Z and Millennials.
This column aims to be a resource for young investors navigating an ever changing financial, political and social landscape as they try to build wealth. Tune in every Thursday for the latest edition.
Edition 60
One of the earliest editions of this column was a piece about why I don’t invest in individual stocks and prefer to build wealth through ETFs.
It was a thesis built on the mountain of evidence on how most stocks underperform, whilst a small minority drive nearly all long-term market wealth. This means the odds of picking one of those winners are far worse than most people realise.
A few things have happened since then. Most importantly, Hendrik Bessembinder updated his landmark research on long-term wealth creation to include last year’s market results. Given this, I think it’s a good time to revisit my original thesis and see where it leaves me.
Bessembinder’s latest findings
Hendrik Bessembinder is best known for his work on long-term shareholder wealth. He has performed a series of studies analysing the lifetime performance of US stocks over the years. His research has become foundational in quantifying just how few firms actually drive overall market returns.
The latest iteration of his paper paints an even starker picture of how uneven stock market wealth creation has become over the years. Across the full century of data now available (~30,000 US stocks), the median stock still delivers a negative lifetime return of roughly -6.9% on a buy-and-hold-basis. This part remains largely unchanged from the last iteration.
What has shifted significantly, is the degree of concentration at the top. Any investor who pays attention to markets every now and then is aware that concentration is rife. Whether you perceive this as an issue is largely subjective.
In the prior study Bessembinder completed almost a decade ago, 89 companies accounted for half of all net wealth creation. That number has collapsed to just 46 companies being responsible for half of the $91 trillion in total market wealth generated over the past century.
In plain terms, the winners are getting fewer, larger and more dominant. Meanwhile the median company survives around seven years before being acquired, delisted or outright failing.
What can we take away from this?
Passive investing through low-cost ETFs has been on the rise and with this, it has picked up a fair few critics along the way.
I’ve seen some argue that Bessembinder’s findings insinuate passive investing into broad markets forces you to own too many market losers. But if we could all reliably pick the winners, we wouldn’t need diversification, index funds or frankly any of this research.
I disagree with the notion that diversification is somehow a liability and think that conclusion fundamentally misunderstands what Bessembinder’s research shows.
The figure below looks at the companies that have driven shareholder wealth over the last ten years vs those from 1926 up until 2016. Notably, many of the companies that dominated before 2016 e.g. Exxon, General Electric have been completely eclipsed by a new group of giants like NVIDIA, Apple and Microsoft.
Each has created trillions in shareholder value over just a few years. The cumulative percentages show how a handful of modern tech firms now account for more than a third of all wealth creation on their own, demonstrating how extreme the shift has become.
Source: One Hundred Years in the U.S. Stock Markets. Hendrik Bessembinder. March 21, 2026.
A portfolio concentrating in a set of handpicked stocks assumes the ability to identify these mega-compounders in advance. This is both a difficult and time consuming exercise for retail investors but even professionals often fail to achieve this consistently.
The fact that the median stock delivers a lifetime return of around -7% doesn’t imply that people need to ‘get better’ at stock picking if they want to succeed. Instead, it shows that the entire game is structurally stacked against the picker.
The distribution of returns is so positively skewed that missing just a few of the outliers is enough to permanently impair your long-term performance. Theoretically, you don’t need to pick the next Mag 7 to be successful because one stock can likely carry your whole portfolio. But we have no dependable or consistent approach of predicting which stock it will be.
I think the only reliable way for most retail investors to capture these extraordinary winners is to simply own the whole field, because the odds of identifying them in advance have only gotten worse over time.
This is something I employ in my own investment approach that combines a handful of low-cost, broad market ETFs, as a method to combat the winner-takes-it-all market we’re currently in.
Why do people still invest in individual stocks?
For all the data showing how difficult it is to outperform the market, people still buy individual stocks. And there are countless reasons for this. For most investors, the primary goal is to earn the highest return possible. But I think that is where the tension begins. Stock picking offers the possibility of an outsized win, whilst index funds offer us something far less dramatic.
Nobody daydreams about their portfolio returning 8% annually. Picking winning stocks, locking in a great return, rinse and repeat intuitively aligns with the way many people imagine investing works. If we home in on this group that are focused purely on the pursuit of returns, the behavioural forces are much more obvious.
One of the biggest behavioural motivations is the belief that we can be the exception. In investing we refer to this as overconfidence bias aka the tendency to overestimate our abilities. Even when the statistics say that most individual stocks underperform, many investors assume they’ll be the ones to find the rare winners. However by definition, we can’t all be the above-average investors. That gap between what we know statistically and what we believe about ourselves creates a cognitive dissonance that can jeopardise long-term goals.
I’m certainly not immune to the psychological pull of individual picks like the horde of speculators in the market. However, I disagree with the notion that younger investors should take on huge amounts of risk because they have time to ‘smooth it out’. Losing $5,000 matters to me more now than it will at 40. This is from both a psychological and mathematical perspective.
There’s also a cultural layer that affects how we think about risk and reward. Aussies are recognised as the world’s biggest gamblers per capita. Speculating over the next big thing taps into all-to-familiar patterns of excitement and anticipation. I don’t mean to liken stock picking to gambling, but it’s helpful to be aware of the forces influencing our decisions, especially with a vague goal of achieving the highest return possible.
By no means am I anti-stockpicker. Without people actively analysing and forming independent views, markets wouldn’t function properly. My issue isn’t with stock picking itself, but with the belief that everyone can do it successfully, consistently and without acknowledging how skewed the odds really are.
It may be the case that you genuinely hold an investing edge and have a tailored goal to achieve. Or you simply enjoy researching companies and treat it as a hobby rather than a path to guaranteed outperformance. Either way, it’s worth examining your circumstances, what you’re trying to achieve and whether your strategy passes a sense check.
