You can be successful and have repeated failures. Just ask a scientist.
Thomas Edison knew this firsthand. He failed a ton.
He also invented something called the light bulb.
What does this have to do with investing? Plenty!
Did you know that most publicly traded stocks go down? Hendrik Bessembinder, of W.P. Carey School of Business, revealed a startling fact in a recent paper: the majority of stocks between December 1925 to December 2023 “had negative cumulative returns”.1
It’s the big winners that pay off big time. Drumroll……
A 5,000,000% return.
Yes, you read that right, five M-I-L-L-I-O-N.
The abstract for his paper states:
However, the investment performance of some stocks was remarkable. Seventeen stocks delivered cumulative returns greater than five million percent (or $50,000 per dollar initially invested), with the highest cumulative return of 265 million percent (or $2.65 million per dollar initially invested) accruing to long-term investors in Altria Group. Annualized compound returns to these top performers relatively were modest, averaging 13.47% across the top seventeen stocks, thereby affirming the importance of "time in the market." The highest annualized compound return for any stock with at least 20 years of return data was 33.38%, earned by Nvidia shareholders.2
I know what you’re thinking. What if I didn’t buy 100 shares of one of those big winners when they began trading on Wall Street?
Here is the important thing…
Even though the majority of stocks go down, the rest of them more than make up for it. Owning all those stocks over that time frame—the majority of which are losers—would still perform well. Bessembinder shows us how.
The mean outcome across stocks is a cumulative compound return of 22,840%, or equivalently, final wealth of $229.40 per dollar initially invested.3
Stunning.
Diversification and time-in the market win again.
Furthermore, this is another argument for investing in indexes like the S&P 500. Since you may not buy individual shares in the biggest winners, you can own some of the high performers that perform so well.
All this to say, you can have some real failures, and still win big investing in US stocks via the superpower of compound interest over the long term.
Now that’s a light-bulb moment for investors.
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Sources:
- Quoted from the abstract of his paper. “Which U.S. Stocks Generated the Highest Long-Term Returns?”, July 16, 2024. Accessed online: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4897069
- Ibid.
- Page 3 of the above paper.