I’m here to spill the truth about stocks, and I think it will surprise many. But knowing this truth can really level up your investing game.
The fact is that most stocks lose money.
Now, I’m not talking about most stocks losing money in a bear market. Or that most stocks lost money in the last year…
I mean throughout history, most stocks have lost money in their lifetime.
To reach that conclusion, I did some digging.
Back in 2017, Dr. Hendrik Bessembinder, an Arizona State University business school professor, wanted to answer a simple question: Do stocks outperform Treasury bills?
He looked at the returns of every U.S. stock traded since 1926 and published his initial results in 2017 before expanding that work to look at global markets.
His latest update includes 64,000 stocks from 43 countries. And a closer look at his findings reveals how many stocks fail to deliver profits in the long term.
Most Stocks Lose
Dr. Bessembinder’s results show that through the end of 2022, globally, 54.8% of stocks suffered losses. A total of 59.4% failed to beat T-bills. Just 40.4% of stocks that have traded around the world were able to beat the risk-free rate of return of T-bills.
Results by country range from 72.6% of stocks losing value in Nigeria to 31.3% in Switzerland.
In the U.S., 52.1% of stocks lost money. T-bills beat 56.6% of the 19,475 stocks that traded since 1926.
Of course, there are some winners. More than half of the wealth created in the stock market came from just 96 individual stocks. The top 5% of performers accounted for 106% of the total return of the market.
That tells us that 95% lost money.
Some investors don’t want to believe these facts. They argue that other studies have shown the benefits of stocks in the long run. They highlight the performance of Warren Buffett or another successful investor they know. They also look at their own performance and point to some winners.
But none of that changes the math. Most individual stocks are losers in their lifetime.
Dr. Bessembinder also looked at returns over different holding periods. For one month, he showed that 50.9% of stocks have losses. That’s based on 9,343,085 individual one-month holding periods.
But there is some hope for stock pickers if they can invest within a favorable holding period. Over a holding period of one year, individual stocks gain 51% of the time.
Remember, over their lifetime, 54.8% of all stocks lose money. The one-year performance indicates there is an opportunity to beat the market.
However, as I noted last week, the key to long-term success is selling.
Selling Is the Key to Long-Term Success
Today, I wanted to show you why selling is so important.
Stocks that go up are relatively rare. That makes sense. Businesses face challenges and many won’t be able to meet the challenge. Taking gains when stocks falter is important to success.
But how can you tell when a company is failing to meet the challenge? If you sell too soon, you miss out on gains. Waiting too long destroys wealth.
As I mentioned last week, to make a sell decision, I rely on a sophisticated strategy. It’s an advanced tool designed by my colleague Adam O’Dell. And it’s incredibly easy for us to use. It’s the Green Zone Power Ratings system.
It uses six factors to assign each stock a score (0 to 100). The higher the rating, the more upside potential and the less downside risk the stock should have over the next 12 months. In the long run, stocks ranked above 60 dramatically outperform the broad market. Stocks rated 40 or below are slated to move in the other direction. Anything in the 41 to 60 range should track the broader market’s moves.
The goal is to not only keep the best performers, but to also weed out the losers. Deciding when or what to sell doesn’t have to be an ordeal.
One approach to consider is selling a stock when its Green Zone Power Rating falls below 60, into the “Neutral” category or worse. This could help you avoid underperformers draining your capital.
Check the rating of any stock you’re holding right now by going to the Money & Markets homepage and entering the ticker or company in the search bar.
This will help you stay well-informed day to day on the weakness and strength of your positions as the market keeps moving.
You could also go here for information on how to access Adam’s “Blacklist” — a database of the worst-rated stocks, according to Green Zone Power Ratings. It’s a one-stop shop for everything you should consider selling, and he updates it every week.
Until next time,
Mike Carr
Senior Technical Analyst
