If you had invested in the US share market over the past century, you would have participated in one of the greatest wealth creation stories ever recorded. 

A dollar broadly invested in the US share market one hundred years ago would have compounded by a staggering 1,500,000% over the course of the century. It’s an extraordinary statistic.  

At a glance, it looks like success must have been a sure thing for US share market investors.  

But beneath that amazing headline return sits a result that is far less intuitive. Most individual shares did not deliver strong outcomes for investors and would have underperformed even very low risk alternatives. That dichotomy between strong market outcomes and weaker results for individual shares, is one of the most important ideas for investors to understand. 
 

What the data actually shows 

The following insights are based on research by Hendrik Bessembinder, who studied 29,754 individual shares listed in the US between 1926 and 2025 ¹. 

Two findings from Bessembinder’s work stand out: 

1. The number of shares that failed to produce any wealth. 

   About 60% of the companies failed to create wealth for investors relative to US Treasury bonds, which are about the safest investment going in the US.  

    
2. The very small number of shares that produced the majority of the wealth. 

   The 1,500,000% compound return is heavily influenced by a small number of exceptional performers.  

These results are not unusual, it’s just that 100 years of data makes the results really stand out. This gap between the ‘average’ and ‘typical’ outcomes is the normal way equity markets work. 
 

The few companies that drive the market 

Let’s dig into the Bessembinder’s findings in more detail. Over the full century, total shareholder wealth increased by approximately $91 trillion US Dollars. That is $91,000,000,000,000!  

But this wealth was not created evenly. Out of nearly 30,000 listed companies, just 46 accounted for half of that total wealth creation.  

The graphic below illustrates this using 1,000 dots to proportionally represent the nearly 30,000 listed companies in the US share market which created this $91,000,000,000,000 of wealth. Based on ratios, just 2 of the 1,000 dots created half of this wealth, 408 dots had returns better than Treasury Bills and 590 dots had returns lower than Treasury Bills.  

That’s an extraordinary level of concentration. It means the overall success of the share market was not driven by widespread success across thousands of companies. It was driven by a very small number of exceptional businesses that delivered sustained, long-term growth. 

Everything else… the successes, the failures, the companies that went nowhere… is secondary. 

A useful way to picture this is to imagine a winning cricket team where one player scores 300 runs while the rest contribute very little. The team score looks impressive on paper, but the result is driven almost entirely by one standout performance. That’s how equity markets work. Over the long term, a small number of companies deliver extraordinary outcomes, and those few successes dominate the result for the entire market. 
 

The implication for investors 

This creates a simple but uncomfortable reality. If you are investing in individual shares, the odds are not naturally in your favour. 

At any point in time, you are selecting shares to own from a pool where the majority of outcomes will be mediocre or poor, and only a very small proportion of companies go on to deliver truly exceptional results. 

The challenge is not just identifying those companies. The challenge is also owning them for long enough to benefit from their success, while avoiding, as much as possible, the large number of companies that will disappoint. 

In hindsight, the winners are easy to identify. Apple, Microsoft, Amazon and others appear obvious today. But before their extraordinary runs, their eventual success was less obvious. Who would have bet on Microsoft against IBM? Who would have thought Apple of the late 1990’s would overtake Microsoft? 

This is what makes successful share picking so difficult. It is not just about being right. It is about being right early, staying right through uncertainty, and avoiding being wrong in the much larger number of cases where things do not work out. A contrarian spirit is also required because if everyone agrees with you, the share price will already be high, diluting the potential big gains.  
 

Why diversification matters

Once you understand this market characteristic, the role of diversification becomes much clearer. 

Diversification is how you guarantee having exposure to the small number of companies that actually drive long-term returns without having to know in advance who they are.

Diversification is often described as a way to reduce risk, and that is true. But that description misses something more important. Diversification is how you guarantee having exposure to the small number of companies that actually drive long-term returns without having to know in advance who they are. It acknowledges that markets are uneven, outcomes are uncertain, and success is concentrated.

Don’t search for the needle. Buy the haystack.  

The gap between theory and behaviour 

Despite this evidence, many investors in New Zealand remain drawn to concentrated portfolios. This is understandable when stories that dominate headlines are the outliers. The natural impression is that identifying winners is easier than it actually is.  

In our experience, concentrated portfolios feel purposeful to investors. They create the illusion that large gains are possible for those ‘in the know’. They give a sense of control and follow the common-sense narrative, “why buy the junk?” 

In contrast, diversification can feel boring. It does not produce dramatic individual success stories or bragging rights. It does not generate the same sense of excitement. But, diversification aligns much more closely with how wealth is actually created in markets over time, and it automatically gives you exposure to the companies that will drive future performance, including those we haven’t yet heard of. 
 

What this means for portfolio construction 

When you accept that returns are driven by a small number of companies, portfolio construction is more straightforward. 

The objective is not to predict which companies will succeed. The objective is to ensure exposure to the full opportunity set. That means building portfolios that are globally diversified, spread across sectors, and structured to capture market returns over time. 

This is the philosophy that underpins our approach. Rather than attempting to pick individual winners, the focus is on constructing portfolios that reflect the broad market and allow the strongest companies to contribute naturally as they emerge. 

This approach removes the need to be consistently correct about the prospects of individual companies. Instead, it relies on a process that captures the aggregate outcome of markets, which, as the data shows, has been both resilient and powerful over long periods. 

 
The adviser’s role in getting this right 

For advisers, this insight is particularly valuable when engaging with clients as questions can often focus on specific opportunities. “Should I buy this company?”, “What about this sector?”, “Is now the right time for a particular investment?” 

Those are natural questions. But the more important conversation is about structure rather than selection. The key is ensuring the portfolio is positioned to benefit from the few companies that will drive long-term returns. This shifts the focus from prediction to probability, reinforcing diversification and helping clients stay invested through volatility because the strategy is grounded in how markets work overtime rather than short-term outcomes. 

A final perspective 

There is a simple way to think about all of this. 

If you were told that most individual options in a system would fail, but if you buy the entire system and you are very likely to be highly successful, the logical response would be to buy the system.  

That is effectively what diversification achieves. It buys capitalism despite the ‘survival of the fittest’ nature of it. It removes the need to identify the few companies that will succeed and instead ensures that you benefit from the $91 trillion success story. 

This article is provided for your information only. It does not constitute financial advice and has been prepared without taking into account any personal financial circumstances.

_{[1] Hendrik Bessembinder, One Hundred Years in the U.S. Stock Markets (2026), extending his earlier work, Do Stocks Outperform Treasury Bills? (2018).}