A lot of sprinters for a few marathon runners
Although this study covers 98 calendar years, these shares only appear in the CRSP data for an average of 11.6 years, with a median sample life of just 6.8 years. In fact, companies can delist for two main reasons: either they are acquired by another company or taken private, or they have gone bankrupt or been delisted for poor operational or stock market performance. According to the study, only 31 stocks are included in the data for all 98 years.
Performing stocks drive indexes upwards
The average result for all equities is a cumulative compound return of 22,840%, or a final wealth of $229.40 per dollar initially invested. However, the median result for all equities is a cumulative compound return of -7.41%, since 51.64% of equities in the CRSP database achieved negative compound returns over their entire lifetime. The fact that the average compound return is strongly positive, while the median return is negative, is explained by the positive asymmetry of the distribution of compound stock returns.
17 extraordinary stocks over nearly a century
17 stocks have generated cumulative returns in excess of 5,000,000%, or $50,000 per dollar initially invested. The best-performing stock is Altria Group, with a cumulative return of 265,000,000% ($2.65 million per dollar initially invested), followed by Vulcan Materials, Kansas City Southern, General Dynamics, Boeing, IBM, Eaton, S&P Global, The Coca-Cola Company, PepsiCo. Annualized compound returns for these outstanding stocks are relatively modest, with an average of 13.47%, underlining the importance of the stock's holding period, and a maximum of 16.29% for Altria Group.
Equity returns are highly asymmetrical, with the distribution of compound returns showing strong positivity. Stocks with shorter lifetimes in the CRSP database tend to perform poorly, often due to write-offs for negative performance or mergers and acquisitions.
Top performers over 20+ years
Among equities with return histories of over twenty years, 75.15% recorded positive compound returns. The median annualized return for these stocks is 7.54%, with a median cumulative return of 813.44%. Long-term equities show a strong asymmetry in the distribution of returns, with average cumulative returns reaching 128,779%.
Among the best-performing stocks over a free period of more than 20 years, we find Nvidia, with a performance of over 33.3% per annum for almosts 25 years, followed by Plenum Publishing (32%), Netflix (32%), Amazon (31.7%), Axon Enterprise (31.1%), Sperry (28.8%), Lin Broadcasting (28.4%), Computer Data Systems (28.1%), Pioneer (28%) and Time Warner (27.1%).
Source: Hendrik Bessembinder
Bessembinder's remarkable study highlights the importance of the length of time stocks are held to generate exceptional returns. Although the majority of stocks have negative cumulative returns, a small fraction of stocks have generated extraordinary returns over long periods. The annualized returns of the best-performing stocks are moderate, but their compounding effect over long periods leads to impressive cumulative returns. This study also highlights the strong asymmetry in the distribution of equity returns, with a few stocks generating extremely high returns, while the majority underperform.
