For the past one hundred years the most reliable way for people to generate wealth has been to consistently invest in publicly traded stocks. The results speak for themselves. According to the paper One Hundred Years in the U.S. Stock Markets by Professor Hendrik Bessembinder of Arizona State University, which will provide many of the stats for this article, $1 invested in January 1926 had grown to $15,041 by December 2025. That’s an impressive 10.1% annualized return.

What’s surprising, though, is the underlying performance of the companies that make up that 10.1% annualized return. Of the 29,754 publicly traded stocks issued in the United States since 1926, only 41.17% of them outperformed the buy-and-hold return of one-month U.S. Treasury bills during their lifetime.

In investing, we sometimes talk about a “risk premium.” A risk premium is the investment return an investor should aim for (but not necessarily receive) above the return they would get from investing in relatively safe U.S. T-bills. What this shows was that in six out of ten cases, an investor would have been better off investing their money with the U.S. government than in public companies. That’s a stinging indictment!

And things get more interesting the more we dig in. Bessembinder then examines company and U.S. stock market performance through the lens of shareholder wealth creation, which he defines as the cumulative dollar return to shareholders in excess of what would have been earned had they invested in Treasury bills. Using this framework, companies can be ranked by how much wealth they create or destroy over time. The results are striking:

Approximately 59% of firms have reduced shareholder wealth relative to Treasury bills, collectively destroying about $10.7 trillion in wealth.
The next 37% of firms generated enough wealth to offset those losses.
The remaining ~4% of companies accounted for essentially all net shareholder wealth creation, totaling roughly $91 trillion from 1926-2025.

When investment returns and shareholder wealth creation are broken down this way, it looks like the obvious thing to do is to avoid the losing stocks and pick the winning ones. So why don’t we just do that?

Individual Stock Picking is Hard

I think we can have fun examining stock picking from a micro and then macro perspective. A few weeks ago, I came across a LinkedIn post by Vitaliy Katsenelson (CEO of Investment Management Associates, Inc) about the price history of Cisco. According to Bessembinder’s paper, Cisco is considered the 27th best company for shareholder wealth creation in U.S. history. However, the starting point for that analysis is the day of Cisco’s public listing. As Vitaliy points out, Cisco’s wealth creating powers or rather lackluster performance, depends on when you bought the stock.

Source: Investment Management Associates, Inc.

The above chart shows various lengths of time it would take an investor to break even on their investment in Cisco. If you bought Cisco at the height of the Dotcom Bubble, it took you a whopping twenty-five years and an AI infrastructure buildout for you to finally get a positive return on your investment. Even if you bought Cisco at a 52% discount from its Dotcom Bubble heights, it would take you 17 years to break even. What this perfectly highlights is that a solid company and a great stock are not the same thing. You can overpay for companies at different points of time in their history and this is something One Hundred Years in the U.S. Stock Markets does not truly capture.

Now, we can expand our anecdote about Cisco to include active investment management more broadly. Active management is the process of identifying stocks you believe are underpriced relative to their intrinsic value. The hope is that the market will eventually recognize that these companies should be worth more, their price rises, and you as the investor earn a higher rate of return.

While this is a wonderful story, it doesn’t play out like this in real life. Below is a snapshot of the SPIVA scorecard, a report that Standard & Poor releases to compare the performance of active investment managers (stock pickers) vs indexes. When I show people the SPIVA scorecard they often think the percentages in the columns are success rates when they are in fact failure rates. They represent the percentage of U.S. equity funds that underperform their respective benchmarks. The question I have is, “Why would an investor choose a strategy that underperforms an index 90-95% of the time?”

Evidence Based Investing

Fortunately, there is a better way. The correct interpretation of One Hundred Years in U.S. Stock Markets is not that there is a lot of money to be made by picking the right stocks, which is technically true but difficult to pull off. Instead, when combined with real world observations, the lesson is we often hurt our investment returns by trying to pick stocks.

The reason is twofold:

Markets are Efficient: This just means that a stock’s price is reasonable for that period of time based off publicly available information and that it’s difficult to beat the market’s opinion over long periods of time. Because markets are efficient, we don’t know who the top performing stocks are ahead of time. And not knowing ahead of time is important because…
Most Stocks are Losers: We are more likely to pick a loser than a winner. Nearly six out of ten stocks underperform T-bills during their lifetime. To add even more difficulty, Cisco shows that a stock can be a top shareholder wealth creator, but depending on when you bought it, it can also be a great underperformer. And when we over allocate our investments to losers, we are by definition under allocating the winners, which we don’t know ahead of time.

With that in mind, evidence-based investing takes a different approach. Rather than trying to fight these incredible headwinds, we use them to guide our investment philosophy. If the future winning stocks are difficult to identify in advance, then the rational response is not to try and guess better, but to own the entire market.

This means building portfolios with exposure to thousands of companies across the U.S. and global markets. Many of those companies will disappoint and fail to beat Treasury bills, but broad diversification increases the odds that your portfolio also owns the relatively small group of companies that end up driving long-term wealth creation.

This is the magic when we harness the power of diversification. It reduces the risk of any single company, sector, or country harming our financial goals. It increases the probability that your portfolio includes the small group of future winners that drive long-term investment returns. And finally, time and resources that have gone to the losing battle of stock picking can be reallocated towards high value items we can control.

What are the important decisions under our control that impact our long-term outcomes? Choosing the right mix of stocks and bonds, managing taxes, coordinating retirement income and planning for estate and charitable goals.

One hundred years of stock market history gives us two lessons that may seem contradictory at first: stocks have been an extraordinary wealth-building tool, but most individual stocks have been disappointing investments. Evidence-based investing accepts both truths. It keeps us optimistic about the long-term power of markets while keeping us humble about our ability to predict which companies will create the most wealth.