most stocks underperform

Here is some fantastic data that highlights the importance of stock selection.…

25% of stocks accounted for all of the markets’ gain.

40% of all stocks suffer a catastrophic loss (70%) and never fully recover.

The median stock underperformed the market with an excess lifetime return of -54%

Two-thirds of all stocks underperform the market.

40% of all stocks have negative total returns.

18.6% of all stocks dramatically underperform the market.

53% of all technology stocks have had negative returns.

Only 6.1% of stocks dramatically outperformed the market during their lifetime.


After Saul’s warning that we should only discuss individual stocks I’m not sure I should reply to this post. I respect Saul’s wishes on his board but I long for a board where one can discuss strategy not necessarily tied to specific stock symbols. If someone can direct me to such a board I would be most thankful.

Re: most stocks underperform

It’s more confirmation of Pareto’s principle.

The difficulty is in identifying those winning stocks! There are tremendous forces working against the investor starting with the Pareto principle, 3 out of 4 picks suck!

Denny Schlesinger


Hi tprooney, I like all of those little statistics, but there are some things you have to be careful about. Take the last one, for instance:

Only 6.1% of stocks dramatically outperformed the market during their lifetime.

Let’s look at that. The 6.1% will fluctuate wildly according to how you define dramatically. If you say a stock has to out perform the market by 25% during it’s lifetime, you’ll get a much, much, MUCH, higher percent who do so, than if you said that outperforming dramatically means outperforming the market by 250%. We have no idea what figure the author used.

Then we have outperform the market. How was the market defined. You’ll get much different results if you use the Dow, the Nasdaq, the S&P, or the Russell 2000. We don’t know what market the author was referring to.

Finally, and most important, we have during their lifetime. What in the heck does that mean? No one holds their stocks through the entire lifetime of the company. If you held YHOO from the mid-1990’s to the end of 1999, you made a mint. If you held it until now, you trailed the market by a huge amount. etc. Think of IBM, or Cisco, or Microsoft. Sure if you held them until they became old stodgy companies they trailed the market, but there were many years during which they massacred the market. When does during their lifetime start and stop, and if it really means for the whole existence of the company, does that have any relationship to the reality of personal experience?

Just musing about how much there is in that one sentence that is undefined.



After Saul’s warning that we should only discuss individual stocks

Hi Denny, I think that what tprooney’s post was about was about the need for picking good individual stocks. It wasn’t about obscure TA terms that most people aren’t familiar with, and that the people who are familiar with like to argue about, and it’s not about market timing. It had no obscure terms at all. I really didn’t see anything wrong with it.



A better measure might be how many stocks out and underperform the index in any given year which is what we are faced with as investors, what should I buy/sell now. For the Pareto principle to hold 3 out of 4 stocks should underperform their index or indexes. It’s like in poker, one big winner and many smaller losers. The winner can’t make more than the losers collectively lose so there have to be more losers than winners. Simple math.

My index of choice is the S&P 500 but I also look at the DJI and the NASDAQ composite. Now I also have the “Saul Indicator!”

Denny Schlesinger


Let’s say we made an index of all USA stocks, and then removed:

  1. the scam penny stocks that never should have been allowed to go public

  2. stocks of companies obviously doing badly, such as third-string retailers BONT, SHLD, and SHOS.

Where would that leave us? Would we now have a high-performing group, or at least respectable?

What else would be easy to eliminate? What else would tell us to overweight certain stocks?

Other criteria could be debt level, popularity of products vs. competitors, share price relative to certain metrics, public opinion of the company…