Stock picking is exceptionally difficult

From 1926 to 2016, only ~4% of stocks accounted for all of the $35 trillion in wealth creation

Over half of stocks had negative lifetime returns! The most common outcome when returns are rounded to the nearest 5% is a 100% loss

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To be precise, only 42.6% of stocks had a lifetime return greater than 1-month T-bills over the same horizon.

In fact, the median lifetime of a stock is only 7.5 years!

Sounds pretty bleak right? Aren’t equities supposed to provide the best long-term returns?

The fact is that the overall stock market outperforms because the best stocks outperform by such a large margin that long-term returns are positively skewed.

Just five companies (Exxon, Apple, Microsoft, General Electric, and IBM) account for 10% of the total wealth creation!

Capitalism is unforgiving and running a great business is one of the hardest things you can do

What can we learn from this?

1. For most people, a diversified portfolio is optimal. Many embrace index funds because missing the top stocks can lead to significant underperformance

2. For skilled investors, concentration makes sense. It’s likely a minority of stocks will make up the majority of your gains. Hold onto them if the thesis is intact!

Selling just because it has gone up too much or not buying because you think you “missed it” is a common mistake

Statistics are from University of Arizona finance professor Hendrik Bessembinder’s study using ~26,000 stocks:

https://www.universal-investment.com/media/document/Do%20Stocks%20outperform%20Treasury%20Bills

Here">https://www.universal-investment.com/media/doc... are the criteria that I look for in identifying exceptional companies:

https://twitter.com/richard_chu97/status/1254533832990175232?s=20

My">https://twitter.com/richard_c... Portfolio: https://twitter.com/richard_chu97/status/1311410253930598405?s=20">https://twitter.com/richard_c...