96% of Stocks Are Wealth Destroyers. Here's How to Find the Other 4%
Lessons from a century of stock market data
Dear Investor,
Zee here. What if I told you that 96 out of every 100 stocks you could buy will do no better than a simple Treasury bill over the long run?
That’s not pessimism. That’s mathematics.
Professor Hendrik Bessembinder from Arizona State University spent years analyzing long-term wealth creation in the stock market, and his findings should fundamentally change how you think about investing.
His research, featured in the latest Graham & Doddsville issue, reveals a stark reality: the entire equity premium, all those excess returns that make stocks worth the risk, comes from just 4% of companies.
Let that sink in for a moment.
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The Brutal Math of Stock Market Returns
Here’s how the numbers break down:
Roughly 57% of stocks actually destroy wealth compared to Treasury bills. These are the companies that go bankrupt, stagnate, or slowly bleed value until investors give up and move on.
Another 39% returns are same as T-bills, they’re the “meh” stocks. Decent businesses, respectable returns, but nothing that moves the needle on your portfolio’s long-term performance.
That leaves 4%. Just four companies out of every hundred generate all the magic. These are the businesses that compound at extraordinary rates for years, sometimes decades. The 10-baggers. The 100-baggers. The stocks that turn modest stakes into generational wealth.
The question every investor should be asking is simple: What separates the 4% from the rest?
Case Study #1: Vulcan Materials, The Unsexy Compounder
One name that surprised Bessembinder sits among the top wealth creators over the past century: Vulcan Materials.
This is a company whose business is sand, gravel, and asphalt. Not software. Not biotech. Not revolutionary AI. Just rocks.
Bessembinder’s observation cuts to the heart of what really matters: “Flashy new technologies are interesting and potentially transformative, but apparently competitive moats can arise in a less sexy business.”
Why did Vulcan Materials end up in the top tier?
Because it built something quietly powerful. The company operates in local markets where switching costs are high, barriers to entry are substantial (try getting permits to open a new gravel pit), and demand is steady. Construction projects need materials. Roads need repair. The need for aggregates doesn’t vanish during recessions, it just slows.
Vulcan compounded steadily, year after year, through wars, recessions, booms, and busts. No single year looked spectacular. But the cumulative effect over decades was extraordinary.
This is the kind of business most investors overlook because it doesn’t generate headlines. And that’s exactly why it worked.
Case Study #2: Altria, The Century’s Greatest Compounder
Want to know the single best-performing stock of the past century?
It’s not Apple. Not Amazon. Not Microsoft.
It’s Altria Group, the parent company of Philip Morris and Marlboro cigarettes.
If you invested $1 in Altria in December 1925 and reinvested all dividends, you’d have $2.65 million by December 2023. That’s a cumulative return of 265 million percent. An annualized return of 16.29% over 98 years.
Think about what that means. Through the Great Depression, World War II, the dot-com bubble, the financial crisis, and countless recessions, Altria just kept compounding.
How did a tobacco company, facing declining consumption, massive litigation, and social stigma, become the best wealth creator in modern market history?
Pricing power. Tobacco is addictive. Altria could raise prices faster than inflation, year after year, and customers kept buying. Since 1950, tobacco product prices increased almost five times faster than overall inflation.
Capital allocation. Altria didn’t hoard cash. It returned money to shareholders relentlessly through dividends. That dividend, reinvested over decades, is what turned a dollar into millions.
Spin-offs. In 2007 and 2008, Altria spun off Kraft Foods and Philip Morris International. Shareholders who held through those spin-offs ended up owning three separate businesses, each continuing to generate returns.
The lesson from Altria isn’t that you should buy cigarette stocks. It’s that boring businesses with pricing power and disciplined capital allocation can outperform the sexiest tech companies over time.
Altria didn’t revolutionize anything. It didn’t disrupt an industry or invent the future. It just sold an addictive product, raised prices, paid dividends, and compounded for a century.
Case Study #3: Costco, Scale Economies Shared
Since going public in 1985, Costco has delivered a cumulative return of over 155,000%. A $1,000 investment at IPO would be worth more than $1.5 million today.
Costco’s success defies retail logic. The company operates on razor-thin gross margins, around 11-12%, compared to Walmart’s 24% or typical department stores at 30-50%. Costco even loses $40 million a year on its famous $5 rotisserie chickens.
So how did Costco end up in the wealth-creation elite?
The answer is a business model so simple it sounds stupid: charge customers to shop, then sell everything as close to cost as possible.
Costco generates essentially all its profit from membership fees. In fiscal 2025, membership fees hit $5.3 billion, accounting for roughly 73% of total profits. The merchandise? That’s sold at near-breakeven.
This creates a self-reinforcing cycle:
Lower prices drive higher membership renewal rates. Costco’s U.S. and Canada renewal rate sits at 92.3%. Customers keep paying $65 a year because they can’t find better deals anywhere else.
Higher renewal rates fund further price cuts. With predictable membership income, Costco can afford to slash margins on products, making the value proposition even stronger.
Better value attracts more members. More members mean more volume. More volume means better negotiating power with suppliers. Better terms get passed on to customers as even lower prices.
This is what investor Nick Sleep called “scale economies shared.” Most companies exploit their scale for higher margins. Costco shares the benefits with customers, which makes the moat wider, not narrower.
The model works because it’s impossible for competitors to copy in isolation. If you try to match Costco’s prices without charging membership fees, you go bankrupt. If you charge membership fees without Costco’s scale and supplier relationships, no one joins.
Costco also doesn’t advertise. Zero spending on marketing. No commercials, no billboards, no Instagram campaigns. The business model itself is the marketing. Happy members tell their friends. That’s it.
What’s striking is how mundane this all sounds. There’s no AI. No platform effects. No network externalities. Just warehouses full of bulk toilet paper and Kirkland-branded vodka.
And yet, over 40 years, Costco compounded faster than almost every flashy tech stock you can name.
Case Study #4: Johnson & Johnson, The Diversified Giant
Johnson & Johnson doesn’t get much attention these days. It’s not a meme stock. It doesn’t have a charismatic founder or viral marketing campaigns. But over the past 30 years, J&J quietly became one of the most reliable wealth creators in the market.
The company operates as a three-headed monster: pharmaceuticals, medical devices, and consumer health products. (Though recently, it spun off the consumer health business into a separate entity called Kenvue.)
What made J&J a top wealth creator?
Diversification without dilution. Most conglomerates are garbage. They own too many unrelated businesses, allocate capital poorly, and destroy shareholder value. J&J is different. All three divisions operated in healthcare, sharing R&D, regulatory expertise, and distribution. The synergies were real, not just PowerPoint fantasies.
Pharmaceutical innovation. J&J invests billions in drug development. When it hits, the payoff is enormous. Drugs like Remicade, Stelara, and Darzalex generated tens of billions in revenue. Patent protection creates pricing power. High margins fund more R&D.
Medical device dominance. J&J makes surgical instruments, orthopedic implants, and cardiovascular devices. These aren’t consumer-facing brands, but they’re sticky. Once a hospital adopts your surgical robot or joint replacement system, switching costs are massive.
Dividend aristocrat. J&J has increased its dividend for 61 consecutive years. That’s longer than most investors have been alive. The dividend isn’t a gimmick. It’s a signal of confidence and a forced discipline on capital allocation.
What’s interesting is that J&J never had a single “killer product” that defined the company. No iPhone moment. No Marlboro. Instead, it built a portfolio of dozens of high-margin products, each with its own moat, and compounded steadily across multiple decades.
The lesson here: diversification works if you stay within your circle of competence. J&J never tried to become a tech company or a bank. It stuck to healthcare, leveraged its expertise, and let the portfolio compound.
Case Study #5: Taiwan Semiconductor, The Quiet Monopoly
Taiwan Semiconductor Manufacturing Company (TSMC) is the most important company most people have never heard of.
If you use a smartphone, laptop, or car made in the last decade, the chips inside were probably made by TSMC. The company manufactures semiconductors for Apple, Nvidia, AMD, Qualcomm, and nearly every major tech firm on the planet.
Since going public in 1994, TSMC has delivered extraordinary returns. Revenue grew at a compound annual rate of 17.2%. Earnings compounded at 16.7%. And shareholders who held on were rewarded with a stock that became one of the top wealth creators of the past 30 years.
What makes TSMC special?
Capital intensity as a moat. Building a state-of-the-art chip fabrication plant costs $15-20 billion. And that’s just the starting point. You need years of expertise, hundreds of engineers, and a supply chain that spans the globe. The barriers to entry are almost insurmountable.
Trusted partner status. TSMC doesn’t design chips. It manufactures them. This “foundry model” means it doesn’t compete with its customers. Apple trusts TSMC with its chip designs because TSMC isn’t going to launch a rival smartphone. That trust is worth billions.
Technology leadership. TSMC stays ahead by reinvesting massive amounts of revenue into R&D and new fabs. It was first to 7nm, first to 5nm, first to 3nm. When you’re the only company that can manufacture the most advanced chips in the world, you have pricing power.
Geographic concentration as risk and advantage. Almost all of TSMC’s production happens in Taiwan. That’s a geopolitical risk, but it’s also leverage. Governments and corporations worldwide depend on TSMC. That dependency creates strategic value.
The company has never cut its dividend since introducing it in 2004. Even during downturns, TSMC kept paying shareholders, a sign of financial discipline and confidence in long-term demand.
What’s remarkable is how invisible TSMC is to most consumers. You’ve probably never seen a TSMC ad. You don’t walk into a store and buy a TSMC product. Yet the company is absolutely critical to the modern economy.
The lesson: being indispensable beats being famous. TSMC doesn’t need brand awareness. It needs to be the only company on earth that can manufacture chips at the leading edge. That’s a better moat than any marketing campaign.
What the 4% Have in Common
So what actually separates the winners from the rest?
Bessembinder’s research points to a few consistent patterns:
Growing cash balances. Winners generate cash and retain it, giving them flexibility to invest, acquire, or weather downturns.
Asset growth. They reinvest intelligently, expanding capacity or entering new markets without destroying returns on capital.
Rising profitability. Margins improve over time, either through scale, pricing power, or operational leverage.
Healthy dividends. Not necessarily high yields, but consistent, sustainable payouts that signal management confidence.
The losers are the mirror image. Shrinking cash. Deteriorating margins. Desperate capital raises. Dividends cut or suspended.
None of this is secret. The challenge is that fundamentals are easy to identify in hindsight and notoriously difficult to forecast.
Markets are competitive. By the time a company’s advantage is obvious, it’s usually priced in. The real work is finding the businesses where the moat is durable but underappreciated, where the growth runway is longer than consensus expects, where management is better than the market gives them credit for.
The Portfolio Implications
If 96% of stocks fail to beat T-bills, what should you actually do?
Option 1: Broad diversification. Own the entire market through index funds. You’ll capture the 4% winners by default, and you’ll also get stuck with the 96% losers. But statistically, the winners more than compensate, which is why the market delivers positive real returns over time.
This is the rational baseline. If you can’t identify the 4%, owning everything ensures you don’t miss them.
Option 2: Concentrated conviction. If you believe you can identify the winners, or at least improve your odds through research and discipline, then concentration makes sense. But you have to be honest about your edge. And you have to be willing to sit through volatility, because concentrated portfolios swing hard.
The mistake most investors make is trying to split the difference. They want the upside of concentration without the homework. They hold 30 or 40 stocks, thinking they’re diversified, but all they’ve done is dilute their winners and guarantee they own plenty of losers.
Bessembinder’s research makes the case for going to the extremes: either own everything, or own very few things you genuinely understand.
Disclaimer: All information here is for educational purposes only. This is not financial advice. Please do your own research and speak with a licensed advisor before making any investment decisions. Past performance is not indicative of future returns.
The concentration of returns in just 4% of stocks makes me wonder if this is actually getting more extreme over time. Bessembinder's research spans a century, but it feels like the winner-take-all dynamics have accelerated in the last couple decades with network effects and global scale advantages. Would be fascinating to see if that 96% failure rate was consistent across different eras or if we're heading toward an even more brutal 2% world.