In recent years, stock market observers have noticed that a small group of mega-sized technology stocks, nicknamed the “Magnificent Seven,” have driven an outsized portion of the return in the broad stock market.
A decade ago, it was FANGs (Facebook, Amazon, Netflix and Google — sometimes, Apple too) leading the charge.
These cadres tend to make headlines because they go against the idea that the stock market is a rising tide that, over time, lifts all boats. In fact, a “thin” market — one in which a few top stocks advance while the bulk of the market retreats — is often considered a signal for a possible pullback.
But over the past century, a few stocks driving the bulk of returns is the rule, not the exception, according to research from Hendrik Bessembinder, a professor at the Carey School of Business at Arizona State University.
From 1926 through 2025, while the weighted average return among nearly 30,000 stocks was more than 30,000%, the median stock returned -6.9%, he found. All in all, he found that over the past 100 years, just 46 firms accounted for half of the wealth created by the stock market.
What does that mean for the average investor? It depends how you interpret the data, Bessembinder tells CNBC Make It. While some investors might see the possibility for enormous wealth by investing in the right stocks, others might see picking winners as finding needles in a haystack, he says.
What investors can learn from 100 years of returns
One major lesson from Bessembinder’s study is that, historically, investing in the stock market over the long term has been worth the short-term risks if you’re hoping to accumulate wealth: Over the past century, the broad stock market generated $91 trillion in wealth for investors, the research found.
Over Bessembinder’s 100-year sample, a value-weighted portfolio of all common stocks produced a return equal to $15,401 for every dollar invested. By contrast, a $1 investment in Treasurys — government-backed bonds that are as close to a “risk-free” investment as possible — would have netted an investor $25.34 per dollar invested.
“In the short term, the stock market is very volatile. Anything can happen. The stock market could drop 50% in in less than a year,” Bessembinder says. “In the long run, the stock market’s been a tremendous wealth-building machine for investors.”
The highest performers, Bessembinder found, are stocks that stuck around for all or nearly all of the 100-year sample and reaped the benefits of compounding interest. These include Altria (formerly Philip Morris), industrial firm Vulcan Materials and IBM, which started out making punch-card systems.
How to invest in the stock market for long-term results
Some investors may look at Bessembinder’s results and think they just need to find market-leading companies with staying power. But that’s much easier said than done, he says.
“There’s a big distinction between identifying these stocks looking back and trying to identify them going forward,” he says. “The crucial question for investors is, do I think I have the skill?”
Some investors do. But for most people, the odds are stacked against you. When comparing individual stock returns against a weighted all-stock portfolio, just 27.6% of stocks outperform the broad market, Bessembinder found. Investors in some 60% of stocks in Bessembinder’s sample would have seen a reduction in wealth.
To use a more concrete example, consider the results of professional mutual fund managers against against their benchmark indexes. Last year, 79% of large-company stock fund managers failed to keep up with the S&P 500, according to data from S&P Dow Jones Indices. That marked the 16th year in a row that more than half of the pros lost to the index.
“The reason you really don’t want to spend your time trying to [pick outperforming stocks] is how unsuccessful people who get paid a living to do this are,” says Sam Stovall, chief investment strategist at investment research firm CFRA.
That’s why Stovall and other investing pros suggest holding a broadly diversified portfolio of stocks, which virtually guarantees you’ll own some of the big winners, along with some of the losers. Plus, by casting a wide net, you defray the possibility that a decline in any single investment could derail your performance.
Could you potentially make more if you chose only the best stocks? Sure. But for most people trying to build compounding wealth while avoiding major losses, the less exciting path is probably the more prudent one, Doug Boneparth, a certified financial planner and founder of Bone Fide Wealth, told CNBC Make It in January 2025.
“What’s right for most retail investors is, participate in the market for the long term by being a passive investor, keeping your costs low and controlling your emotions when things get wild,” he said. “These tried-and-true, long-term, very disciplined ways of going about investing are ultimately what work.”
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