60% Of Global Stocks Underperformed T-Bills, Study Shows

A couple of years back, we reported on a study by Arizona State University professor Hendrik Bessembinder which delivered a conclusion that might be surprising to retail investors, if less so for those who have been paying close attention to markets during the prior years: In a study of 26,000 stocks traded in the US between 1926 and 2015, just 4% accounted for all of the $31.8 trillion in market-cap gains during that period.

This means that, over time, the vast majority of US-traded stocks couldn't even outperform "riskless" T-bills. So, in theory, millions of investors took on all of that extra risk for no added benefit.


Now, Bessembinder is back with an expanded version of his previous study. This time, his team studied about 62,000 stocks traded in more than 40 countries between 1990 and 2018.

What did they find? About 60% of the stocks studied performed so poorly, they did worse than a one-month Treasury note. That's an even greater percentage than the initial study that focused solely on the US (in that study, 58% of stocks studied underperformed T-bills), Bloomberg reports.

Suddenly, the 2 and 20 crowd's inability to outperform their benchmarks makes a lot more sense.

So, what does this mean for individual retail investors? Well, it certainly has some implications for the passive vs. active debate. Though low fees and steady returns have attracted millions of investors to passive index-tracking ETFs, in reality, investors are getting what they pay for.

It also offers some insight into why it's so hard for active investors to outperform their benchmarks.

"It is historically the norm in the US and around the world that a few top-performing companies have great influence over how the market does overall," Bessembinder, a professor at the W.P. Carey School of Business at Arizona State, said by phone. "It’s the norm and I expect it to be the case in the future."

And finally, it calls into question conventional investing wisdom that has long been taken as gospel: Stocks are riskier, but generate higher returns, while bonds are relatively "safe" investments that offer lower, if steadier, returns.

As a whole, the equity market created $44 trillion in shareholder wealth between 1990 and 2018, beating Treasury notes. But that figure is largely due to compounding returns from the usual suspects, like Apple, Microsoft, Alphabet, Amazon and Exxon.

Those four stocks accounted for more than 8% of global net wealth creation during that period.

So, what's the takeaway here? Maybe the 2-and-20 long/short equity crowd would be better off rolling over T-bills.