Best of: the world’s greatest stocks

Episode Summary

Executive Summary: The episode examines Hendrik Bessembinder’s research on the best long-term U.S. stocks and finds that extraordinary wealth creation comes from a tiny minority of companies that survive for decades. The hosts highlight how compounding, longevity, brand power, monopoly-like positions, and in one case addictive products drive outsized returns, while arguing this evidence strongly supports passive investing over stock-picking.

Main Topics: Bessembinder’s study of “super stocks” (Priority: 5/5): The hosts discuss a new paper ranking U.S. stocks by lifetime compounded returns and use it to illustrate how rare truly great stocks are. Compounding and survival as the real drivers of returns (Priority: 5/5): They emphasize that steady returns over many decades matter more than flashy short-term gains, and that avoiding collapse is essential. Unexpected winners from capital-intensive industries (Priority: 4/5): The top names include Boeing, General Dynamics, railroads, and Vulcan Materials, showing that old-economy, asset-heavy businesses can outperform over long horizons. Concentration of stock-market wealth (Priority: 5/5): The conversation stresses that most stocks underperform or lose money, while a small set of winners drives nearly all market wealth creation. Passive investing vs stock picking (Priority: 5/5): Robin uses the findings to reinforce the case for indexing, while acknowledging stock pickers may still hunt for rare outliers. Long/short segment on leveraged Bitcoin ETFs and public incompetence (Priority: 3/5): In the closing segment, the hosts ridicule a leveraged MicroStrategy ETF and celebrate spectacular failure as a path to fame and monetization.

Key Arguments: The greatest stocks are not necessarily the most exciting; they are the ones that compound reliably for decades without blowing up. A business can be mediocre or capital-intensive and still create enormous wealth if it maintains pricing power, survives, and compounds above average. Most individual stocks are poor investments: the average stock has done far worse than the market index, and many have lost money outright. A handful of mega-winners account for most long-run stock-market wealth, which strengthens the case for broad diversification and passive funds. Brand power and addictive products can produce exceptional long-term returns, as shown by Ultria/Philip Morris and other consumer brands. Leveraged single-stock ETFs and leveraged crypto-themed products are viewed as dangerously foolish, likely to destroy capital for most holders.

Data Points: Boeing cumulative return: 21 million percent - Ranked number 5 in the Bessembinder list, from 1934 onward. Boeing annual compound return: Just under 15% per year - Equivalent long-run compounding rate over less than a century. General Dynamics cumulative return: 22 million percent - Ranked number 4 in the list. General Dynamics annual compound return: Just over 13% per year - Long-run compounding rate. Kansas City Southern cumulative return: 36 million percent - Ranked number 3, despite later being acquired and no longer existing as an independent company. Vulcan Materials cumulative return: 39 million percent - Ranked number 2; company makes construction materials such as gravel, crushed stone, and sand. Ultria Group cumulative return: 265 million percent - Ranked number 1; formerly Philip Morris, associated with Marlboro. Ultria annual compound return: 16% per year - Long-run return over almost 100 years. U.S. stock market mean cumulative return: 22,000% - Average market outcome over the century mentioned in the discussion. Median stock outcome: -7.5% - The median individual stock reportedly lost money over the period. Share of stocks underperforming bank accounts: About 90% - The hosts note most stocks did worse than leaving money in a bank account. Average lifespan of U.S. companies in CRSP database: Less than 7 years - Used to illustrate how rare long-lived winners are among nearly 30,000 U.S. stocks.

Pivotal Quotes: "Don't go to zero, is my top stock market tip." — Rob Armstrong: He summarizes the importance of survival and avoiding catastrophic loss. "Stop looking for golden needles, just buy the entire haystack and relax." — Robin Wigglesworth: A paraphrase of Jack Bogle’s philosophy supporting passive investing. "The trick in life is to fail, but at the highest possible level." — Rob Armstrong: Closing joke in the long/short segment, framed as a satirical lesson from the show.

Implications: For listeners, the takeaway is that long-term investing rewards patience, diversification, and survival more than prediction. For the industry, the data strengthen the argument for passive indexing and warn against glamorizing concentrated bets or leveraged products.