Wealth Creation in the US Public Stock Markets 1926–2019

Abstract

This report quantifies long-run stock market outcomes in terms of the increases or decreases (relative to a T-bill benchmark) in shareholder wealth, when considering the full history of both net cash distributions and capital appreciation. The study includes all of the 26,168 firms with publicly traded US common stock since 1926. Although investments in the majority (57.8%) of stocks led to reduced rather than increased shareholder wealth, US stock market investments increased shareholder wealth on net by $47.4 trillion between 1926 and 2019. Technology firms accounted for the largest share—$9.0 trillion—of the total, but telecommunications, energy, and healthcare/pharmaceutical stocks created wealth disproportionate to the numbers of firms in the industries. The degree to which stock market wealth creation is concentrated in a few top-performing firms has increased over time and was particularly strong during the most recent 3 years, when five firms accounted for 22% of net wealth creation. These results should be of interest to any long-term investor assessing the relative merits of broad diversification versus narrow portfolio selection.

TOPICS: Security analysis and valuation, performance measurement, wealth management, portfolio construction

Key Findings

• ▪ Shareholders who took on the risk of investing in the public US stock markets between 1926 and 2019 were rewarded by an aggregate wealth increase of more than $47 trillion, as compared with a T-bill benchmark.

• ▪ The majority of individual stock investments led to decreased rather than increased wealth in the long run. Aggregate shareholder wealth creation is concentrated in a relatively few high-performing stocks.

• ▪ The degree to which stock market wealth creation is concentrated in a few firms has increased over time, and it was particularly strong during the most recent 3 years.