Buying stocks always involves a certain amount of risk, but investors accept it in hopes of higher rewards. But a study found that most stocks don't reward buyers, leaving a total $75.7 trillion global wealth created between 1990 and 2020 to a sliver of the stock market, just 2.4% of stocks.
A small group of 159 stocks produced half of the world's stock-market wealth during the period of the study. Researchers from Arizona State University, Tulane University and Hong Kong Polytechnic University conducted the work.
That is just 0.25% of a total of 63,785 companies in the study, published in the Financial Analysts Journal.
The study also found that a majority of stocks in the U.S. didn't pay investors for the risk they took in buying them. More than 55% of U.S. stocks in the group had compound returns lower than that of the risk-free one-month Treasury bill over 31 years.
The broader stock market, however, did better than short term T-bills, thanks to a few stocks that outperformed. Apple and Microsoft were among five stocks that generated 10.3% of total wealth created. Apple alone contributed $2.67 trillion of $75.66 trillion wealth created in the U.S. market.
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Handful Of Stocks Account For Most Wealth
Researchers found stock market wealth was concentrated among a handful of stocks. Only 1,526 stocks — or 2.4% of companies — accounted for all of the wealth created in the 1990-2020 period.
Among the biggest wealth generators, Facebook parent Meta Platforms was among later entrants in this list, as were Tesla and China e-commerce giant Alibaba.
Walmart and JPMorgan Chase, Walt Disney and Coca-Cola made it to the top 50.
Health care stocks such as Johnson & Johnson, Merck and Swiss-based Roche Holding also rewarded investors.
Other American Depository Receipts of note were Taiwan Semiconductor, Novartis, ASML Holding, and Nestle.
The findings may be discouraging, but they also show the importance of buying superior market leaders and investing in them during price uptrends. IBD tools are designed to identify those leaders early in their runs, using chart analysis to identify proper buy and sell price areas.
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