The world’s greatest stocks

Episode Summary

Executive Summary: The episode reviews Hendrik Bessembinder’s research on the greatest U.S. stocks by lifetime compounded return and argues that exceptional stock-market wealth is created by a tiny number of long-lived winners. The hosts highlight unexpected leaders—mostly old-economy, capital-intensive firms like Boeing, railroads, and materials—then connect the findings to passive investing, diversification, and the danger of trying to pick the next superstock.

Main Topics: Bessembinder’s superstocks list (Priority: 5/5): The hosts discuss a new paper identifying the U.S. stocks with the highest cumulative returns over roughly a century, emphasizing that compounding over long periods matters more than flashy short-term gains. Compounding and survival (Priority: 5/5): A central theme is that great stock returns come from durable businesses that avoid collapse and keep compounding at modest but steady rates for decades. Capital-intensive winners (Priority: 4/5): The list is dominated by surprising old-economy firms—planes, submarines, railroads, and construction materials—showing that capital-heavy businesses can still be extraordinary long-term investments. Concentration of market returns (Priority: 5/5): The hosts stress that most stocks have performed poorly, while a small handful of companies generated almost all stock-market wealth, reinforcing the skewed nature of equity returns. Passive investing vs stock picking (Priority: 5/5): The discussion links the findings to Jack Bogle’s case for index investing: if most stocks fail and only a few win big, owning the whole market is often the rational choice. Tobacco and brand power (Priority: 4/5): Philip Morris/Altria tops the list, illustrating how addictive products, strong branding, and long survival can create extraordinary compounding despite obvious product harm. Short segment on leveraged single-name ETFs (Priority: 3/5): The hosts criticize a MicroStrategy leveraged ETF as an absurd, capital-destroying product and use it to mock modern financial engineering.

Key Arguments: A stock can become legendary not by explosive annual gains, but by compounding around 13%–16% for many decades without blowing up. Most U.S. stocks have historically been bad investments; the median stock lost money over the full sample, while the index rose because of a tiny number of huge winners. The best long-term performers are often boring or old-economy businesses with structural advantages, pricing power, or natural monopolies. Long-lived companies matter more than trendy sectors; survival itself is a major driver of equity success. The paper supports passive investing because predicting the few future superstocks is extremely difficult. A strong brand, addictive product, and legal monopoly-like market power can create massive wealth over time, as shown by tobacco. Leverage layered on leverage, especially in single-stock ETFs, is presented as reckless and likely to destroy investor capital.

Data Points: Boeing cumulative return: 21 million percent - Number 5 on the list, from 1934 to end of sample Boeing annualized return: Just under 15% - Implied long-run compound annual growth rate General Dynamics cumulative return: 22 million percent - Number 4 on the list General Dynamics annualized return: Just over 13% - Implied long-run compound annual growth rate Kansas City Southern cumulative return: 36 million percent - Number 3 on the list; later acquired and no longer exists independently Vulcan Materials cumulative return: 39 million percent - Number 2 on the list; crushed stone/gravel/sand producer Altria/Philip Morris cumulative return: 265 million percent - Number 1 on the list; formerly Philip Morris Altria/Philip Morris annualized return: 16% - Implied long-run compound annual growth rate IBM cumulative return: 17 million percent - Mentioned as number 6 on the list US stocks counted in CRSP database: Almost 30,000 - Universe used by Bessembinder for the century-long analysis Average lifespan of stocks: Less than 7 years - Illustrates why longevity is rare and valuable Mean century-long stock-market outcome: 22,000% - What the overall stock market generated over the century Median stock outcome: -7.5% - The typical stock lost money over the full period Share of stocks doing worse than a bank account: About 90% - Shows how uncommon outperformance is

Pivotal Quotes: "Don't go to zero, is my top stock market tip, basically." — Rob Armstrong: On the importance of survival and avoiding catastrophic loss "Stocks for the long run, but it's not stock for the long run. Stock market does well. Individual stocks suck." — Robin Wigglesworth: Explaining the gap between market-level returns and individual-stock outcomes "The trick in life is to fail, but at the highest possible level." — Rob Armstrong: Closing joke in the segment on success, failure, and public incompetence

Implications: For investors, the episode argues for humility: most stocks underperform, so diversification and index investing are usually safer than hunting for unicorns. For industry, it highlights the value of longevity, scale, pricing power, and brand moat over short-term hype.