The Best Performing Stocks of The Last 100 Years

Episode Summary

Executive Summary: The episode reviews a century of investment returns, using long-run academic research to show that equities have vastly outperformed bonds and cash, despite wars and crises. It highlights the importance of compounding, diversification, and patience, and notes that a tiny fraction of stocks created nearly all shareholder wealth. It closes with the top-performing countries and individual stocks since 1926.

Main Topics: Long-run global asset-class returns: Using Credit Suisse/LBS yearbook data, the episode compares stocks, bonds, and bills over 120 years and shows equities as the strongest real-return asset class. Compounding and survival through crises: The speaker emphasizes that even after world wars, recessions, and market turmoil, equity markets trended upward over very long horizons because compounding dominates. Interest rates, bond returns, and factor premiums: The discussion notes that low real interest rates reduce expected returns across assets, while longer-duration bonds and credit risk have historically earned modest premiums; factor effects exist but are not guaranteed. Country-level equity market winners: The episode ranks the best-performing stock markets since 1900 and explains why resource-rich, diversified economies such as Australia, the U.S., and South Africa performed strongly. Single-stock wealth creation and concentration: Bessenbinder’s research is used to show that most stocks underperform cash, while a small minority generate nearly all market wealth, reinforcing the case for diversification. Top stocks since 1926: The episode lists the ten best-performing U.S. stocks since CRSP data began, illustrating how exceptional long-term winners can dominate wealth creation.

Key Arguments: Stocks have been the best long-term investment over the last 120 years, with real returns far above bonds and Treasury bills. Compounding makes small annual return differences enormous over multi-decade horizons; equity investors end up vastly wealthier than cash investors. Low real interest rates imply lower expected returns across asset classes, and falling rates tend to boost returns. Diversification matters because today’s winning sectors and companies can become tiny or obsolete over time, as railroads did. Bond investors are compensated for duration and credit risk, but the premiums are modest compared with equity returns. Factor premiums such as value, momentum, size, income, and low volatility may exist, but they are not guaranteed and can underperform for long periods. A tiny share of stocks created most of the wealth in the market, so stock-picking is extremely difficult and concentrated. Country-level performance is influenced by resource endowments, wartime damage, and economic diversification.

Data Points: Global equity real return: 5.2% annualized - Average real return for global stocks over the last 120 years Global bond real return: 2.0% annualized - Average real return for bonds over the last 120 years Global Treasury bill real return: 0.8% annualized - Average real return for short-term fixed income over the last 120 years Relative wealth from stocks vs T-bills: 165x more money - Compounded outcome over 120 years for stocks versus Treasury bills Equity returns since 2000: Below long-run average - Inflation-adjusted equity returns in the 21st century so far Top stock market: Australia: 6.8% real return - Ranked first among global stock markets since 1900 United States equity market: 6.5% real return - Ranked second among global stock markets since 1900 South Africa / New Zealand: 6.4% real return - Tied in the top group of global stock market returns since 1900 Denmark: 5.8% real return - Ranked among the top 10 global stock markets since 1900 Sweden: 5.7% real return - Ranked among the top 10 global stock markets since 1900 Canada: 5.5% real return - Ranked among the top 10 global stock markets since 1900 Finland: 5.4% real return - Ranked among the top 10 global stock markets since 1900 Switzerland / Netherlands: 5.3% real return - Ranked among the top 10 global stock markets since 1900 Australia commodity-rich status: Natural-resource-rich economy - Cited as a reason for Australia’s strong long-run performance Railroads in U.S. market value, 1900: 63% - Illustrates how dominant sectors can disappear over time Bond maturity premium: Approximately 1% per year - Estimated long-run premium for longer-dated bonds High-grade U.S. corporate bond premium: 0.73% per year - Estimated premium for credit risk in corporate bonds Stocks analyzed by Bessembinder: Over 25,000 common stocks - Universe used in the single-stock wealth study Stocks generating all shareholder wealth: A little over 1,000 stocks (~4%) - Small subset responsible for all market wealth creation since 1926 Stocks equivalent to risk-free returns: 96% of all stocks - Collectively no better than one-month Treasury bills Wealth share from 50 stocks: Well over one-third - Concentration of wealth creation among the very top winners Best stock since 1926: Apple - Ranked number one in the list of top-performing stocks Second-best stock since 1926: Microsoft - Ranked number two in the list of top-performing stocks Third-best stock since 1926: ExxonMobil - Ranked number three in the list of top-performing stocks Fourth-best stock since 1926: Amazon - Ranked number four in the list of top-performing stocks Fifth-best stock since 1926: Google - Ranked number five in the list of top-performing stocks Sixth-best stock since 1926: Johnson & Johnson - Ranked number six in the list of top-performing stocks Seventh-best stock since 1926: Walmart - Ranked number seven in the list of top-performing stocks Eighth-best stock since 1926: IBM - Ranked number eight in the list of top-performing stocks Ninth-best stock since 1926: Berkshire Hathaway - Ranked number nine in the list of top-performing stocks Tenth-best stock since 1926: Procter & Gamble - Ranked number ten in the list of top-performing stocks

Pivotal Quotes: "In the last 120 years, investments in stocks have given investors the best long-term investment returns, solidly beating fixed-income investments." — Patrick Boyle: Core conclusion from the global market return research "Finding these home-run stocks is difficult, and many investors, rather than trying to find a needle in a haystack, just buy the whole haystack." — Patrick Boyle: Explanation of why diversification is the practical response to stock return concentration "96% of all stocks collectively performed no better than investing in risk-free one-month Treasury bills." — Patrick Boyle: Summary of Bessembinder’s finding on the distribution of stock returns

Implications: For investors, the message is to think long term, keep expectations realistic, and diversify broadly. Most wealth comes from a small number of winners, so avoiding concentration risk matters as much as chasing returns.