Hendrik Bessembinder: Do Stocks Outperform Treasury Bills?: "The majority of common stocks... since 1926 have lifetime buy-and-hold returns less than one-month Treasuries. When stated in terms of lifetime dollar wealth creation, the best-performing 4% of listed companies explain the net gain for the entire US stock market since 1926.... The important role of positive skewness... skewness in monthly returns and to the effects of compounding. The results help to explain why poorly diversified active strategies most often underperform market averages...
...Just five companies out of the universe of 25,967... account for 10 per cent of the total wealth creation over the 90 years, and just over 4 per cent of the companies account for all of the wealth created.... Moreover, the results have been getting worse for equity investors more recently. Of the stocks floated between 1947 and 1956, 87 per cent had higher returns than US Treasuries. This fell to 61.5 per cent for those entering from 1957 to 1966 and just 31.7 per cent of those floated from 1977 to 1986. Most alarmingly, the median stock entering the market since 1977 did not just underperform Treasuries but had a negative return....
Stocks in aggregate outperform bonds, but most stocks do not and positive returns are concentrated in very few stocks. Most active investors are doomed to underperform not only the equity indices but also bonds...
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