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TIP667: Why Most Stocks Will Lose You Money w/ Professor Hendrik Bessembinder

Oct 11, 2024

Professor Hendrik Bessembinder, a finance expert from Arizona State University, dives into why most stocks fail to deliver returns over the long haul. He highlights that only a select few stocks drive market gains while the majority lose money. Bessembinder discusses the asymmetry in stock market returns and why equities outshine treasury bills over time. He shares insights on the characteristics of the biggest market winners and the challenges stock pickers face today, revealing intriguing trends in both U.S. and international stocks.

01:00:41

Episode guests

Hendrik Bessembinder

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Quick takeaways

Only 4% of U.S.-listed companies have generated all net shareholder returns since 1926, illustrating the prevalence of underperformance.

The positive skewness in stock returns indicates that while most stocks lose money, a small number drive significant market gains.

High-performing stocks often endure significant drawdowns, highlighting the volatility inherent in achieving extraordinary investment returns.

Deep dives

The Disparity in Stock Performance

A significant finding from the research is that a mere 4% of U.S.-listed companies have generated all of the net returns to shareholders since 1926. This statistic illustrates the harsh reality that most stocks tend to underperform compared to safer investments like Treasury bills. It challenges the common belief that selecting individual stocks can consistently yield substantial returns, emphasizing that the majority of stocks have actually lost money over time. The research reveals that while the average return of the stock market as a whole may be positive, most individual stock performance results in negative outcomes.

Stocks Demand Caution: Majority Underperform

01:27

Surpass Competitors to Achieve Success

00:21

Long-Term Growth Trumps Short-Term Gains

01:39

Technology Stocks: Illusion of Dominance

01:12

Intro

2min

The Skewness of Stock Returns

11min

Exploring the Performance Gap: Stocks vs. Treasuries

2min

Transforming Trading and Analysis: Innovative Tools for Investors

3min

Navigating Volatility in High-Performing Stocks

16min

Indexing vs. Active Management

8min

The Complexity of Stock Valuation

14min

On today’s episode, Clay is joined by Professor Hendrik Bessembinder to discuss his renowned research on the performance of individual stocks.

Professor Bessembinder is a finance professor at Arizona State University, and his research titled, ‘Do Stocks Outperform Treasury Bills?’ has been referenced many times on the show. As a frequent speaker at conferences, financial markets, and universities around the world, Professor Bessembinder has more than 25 years of successful consulting experience, providing strategic advice and analysis for major firms, financial markets, and government agencies.

IN THIS EPISODE YOU’LL LEARN:

01:58 - Why most stocks lose money in the long run.

10:26 - What level of asymmetry exists in the stock market.

12:47 - Why stocks continuously outperform treasury bills over long time periods.

15:02 - What the average drawdown for a high-performing stock is.

20:57 - The common characteristics of the biggest stock market winners.

34:28 - What it takes to be a stock picker in today’s market.

45:17 - What the best-performing stocks are since 1925.

51:48 - Whether there is skewness in international stocks to the same degree as US stocks.

And so much more!

Disclaimer: Slight discrepancies in the timestamps may occur due to podcast platform differences.

BOOKS AND RESOURCES

Join the exclusive TIP Mastermind Community to engage in meaningful stock investing discussions with Stig, Clay, Kyle, and the other community members.
Hendrik’s most well-known paper, Do Stocks Outperform Treasury Bills?
Hendrik’s research.
Related Episode: Listen to TIP654: Investing Across the Lifecycle w/ Aswath Damodaran, or watch the video.
Related Episode: Listen to TIP543: 100 Baggers: Stocks that Return 100-1 w/ Chris Mayer, or watch the video.
Follow Clay on Twitter.
Check out all the books mentioned and discussed in our podcast episodes here.
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