Hendrik Bessembinder

Concentrated markets deliver significantly higher returns than declining concentration periods.

It reminds me of the work of Hendrik Bessembinder, who studied companies from 1926 to 2019, and he found that the 47 trillion in wealth generated by 26,000 companies, 83 of them delivered half of all of that wealth.

In a recent update to his work, so between 1990 and 2018, he found that just 1.3% of stocks contributed to all of the net gain of all of the wealth generated in the stock market.

You could simplify that by just saying winners win, and when the stock market finds a winner, that's when investors generate above average returns.

I don't know why.

I look at this chart and I think maybe concentration should be celebrated.

As Bessembinder showed us, in a world where so much is delivered by so few, a concentrated market means we've got ourselves a winner.

So concentration in this way is the market sifting out the dross and exposing these brilliant businesses.

So here's the, uh, the data.

Um, and I, I refer to Hendrik Bessembinder at Arizona State University, who initially was trying to figure out when stocks and bonds outperform each other, but kind of stumbled into the data that very, very few stocks actually create any value.

And it turns out 1.2% of all issued publicly traded stocks Have, have created some, uh, have created all the value in the stock market, all the wealth in the stock market.

Which is a crazy number and, and if you just stop for a moment and think about it, hey, if, if less than 2% of all stocks are creating all the value, how can I make sure I own those two stocks? One way is to buy them all, index, uh, do what Jack Bogle describes that don't look for the needle, buy the whole haystack.

There is a twenty twenty-six working paper.

This is the Bessembinder paper that we talked to him about.

It's focused on single stock leverage ETFs, and it does look specifically at the claim that daily resets lead to underperformance relative to a static leverage portfolio, not rebalanced.

And Bessembinder does explain in that paper, as we just talked about, that daily rebalancing can work against you in a specific realized return outcome, but not necessarily all outcomes.

They're focused on single stock leverage ETFs, and they do find in that case that daily resets do result in a cost over their frictionless benchmark due to the specific return paths of individual stocks in their sample.

So that's interesting.

So what we're experiencing, even though it may feel different It is not.

So if you think back across a full century from January 1926 through December of 2025, according to a landmark study by Arizona State University Professor Hendrik Bessembinder titled "One Hundred Years in the US Stock Markets," out of nearly 30,000 common stocks listed over that period, 30,000, just 46 over 100 years, 30 stocks, 46 accounted for a staggering half of all net wealth creation, totaling $91 trillion.

In fact, the median buy and hold return for all common stocks over the, that century was actually a negative 6.9%.

And if you look at a static statistic like the S&P 500, if you had bought the S&P 500 in 1957 when it was founded, and you did not adjust that index, now keep in mind the S&P 500 is a living index, stocks come and go out of that index, but you did not adjust that index, then you would have had nothing like the returns you've had currently, just 53 out of the 500 companies in the S&P 500 in 1957.

But let me, uh, let's put my personal ex- examples aside for a minute.

A couple years ago, an economist from Arizona State University, a fellow by the name of Hendrik Bessembinder, published a paper on the difficulty of picking individual stocks, and he's another apostle of index funds, because he found that only a small number of individual stocks produce the vast bulk of the market's gains.

I look at the same numbers and come to a very different conclusion.

Looking at data from December 31, 1925 until December 31, 2023, Bessembinder sought to examine how well you could do with stocks provided you reinvested the dividends and didn't sell.