As the bull market soars to new records, skeptics warn that market indexes mask a severe decline in market breadth. Indeed, key technical indicators confirm this, pointing to trouble ahead, per a detailed report in MarketWatch. Meanwhile, a comprehensive study of global stocks across the last 28 years finds that 60% of them failed to match the return on one-month U.S. Treasury Bills, while a mere 1.3% of them accounted for 100% of the wealth created by global equity markets, Bloomberg reports.

"It is historically the norm in the U.S. and around the world that a few top-performing companies have great influence over how the market does overall,” as Hendrik Bessembinder, a professor at the W.P. Carey School of Business at Arizona State University who led the research, told Bloomberg. “It’s the norm and I expect it to be the case in the future,” he added.

Key Takeaways

  • Over long study periods, most stocks fail to beat T-Bill returns.
  • Only a tiny minority of stocks create value over long periods.
  • These facts are true for U.S. and global stocks alike.

Significance For Investors

"I define wealth creation as the accumulation of market value in excess of the value that would have been obtained if the invested capital had earned one-month Treasury bill rates," Bassembinder explained in an earlier paper, published in 2018.

Bessembinder found that shares of just 5 huge companies accounted for 8% of the net increase in global shareholder wealth during the 28-year study period from 1990 through 2018: Apple Inc. (AAPL), Microsoft Corp. (MSFT), Alphabet Inc. (GOOGL), Amazon.com Inc. (AMZN), and Exxon Mobil Corp. (XOM). Similarly, S&P Dow Jones Indices found that Apple, Microsoft, Amazon, and Facebook Inc. (FB) drove 19% of the year-to-date total return in the S&P 500 Index (SPX) through July 18, 2019.

Bassembinder's team looked at about 62,000 global stocks trading in more than 40 countries. They calculated that global shareholder wealth increased by a staggering $44 trillion from 1990 through 2018. However, just 306 stocks, about 0.5% of the total, generated roughly 75% of that gain, while only 811 stocks, or 1.3%, drove the entire gain.

In his earlier study, released in 2018, Bassembinder looked at 25,300 U.S. stocks during the 90-year period from 1926 through 2016. "When stated in terms of lifetime dollar wealth creation, the best-performing 4% of listed companies explain the net gain for the entire U.S. stock market since 1926, as other stocks collectively matched Treasury bills," he wrote.

He calculated lifetime shareholder wealth creation during that 90-year period as being nearly $35 trillion. Just 5 firms accounted for 10% of this total: Exxon Mobil, Apple, Microsoft, General Electric Co. (GE), and International Business Machines Corp. (IBM).

Similar to the results of Bassembinder's recent global study, this earlier study of U.S. equities found that 57% of the stocks failed to match the returns on one-month T-Bills. He also found that, among the common stocks in this U.S. equity database: more than half delivered negative lifetime returns; the most frequent outcome, when rounded to the nearest 5%, was a lifetime loss of 100%; and the median lifetime of a common stock in the database was a mere 7.5 years.

Looking Ahead

"The results help to explain why poorly diversified active strategies most often underperform market averages," Bassembinder observed in his 2018 U.S.-focused paper covering the years 1926 through 2016.