In 2017, a paper by Hendrik Bessembinder produced what, to me, was (and still is) the most surprising investing factoid I’d ever read: the best-performing 4% percent of stocks explain the entire equity risk premium since 1926, as other stocks collectively earned no more than Treasury bills. And more than half of stocks delivered negative lifetime returns. To me, that’s an extremely compelling an argument for a “total market” approach to stock investing (and avoiding owning individual stocks at all, if possible). I have no idea which 4% will be the future superstars. If I want to make sure my portfolio includes them, buying the market is my only path to doing so.
Bessembinder recently put out another piece of research that digs further into the topic of those superstar stocks and what their returns look like.
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