When investing, it’s important to understand the odds you’re facing. And some statistics are hard to ignore.
We analyzed over 20,000+ U.S. stocks listed between 1950 and 2022 (and subsequently delisted) to answer a critical question: What are the chances of beating the market?
The answer: roughly 1 in 3.
Not very encouraging odds, are they?
And for those chasing multi-bagger stocks, they are even slimmer.
This aligns with previous studies showing that only about 40% of stocks outperform Treasury bills over their lifetime.
You might still think a 35% chance of finding a stock that outperforms the market is worth pursuing. While odds matter, expected returns are equally important. If the potential reward outweighs the risk, it might still be a reasonable bet.
But the numbers suggest otherwise.
Underperforming stocks had a median annual relative return of -29.3% compared to the S&P 500, while outperforming stocks delivered only +8.9%. In other words, the losses when you’re wrong are far greater than the gains when you’re right.
Some might argue that focusing on delisted stocks could bias the results, as delisted companies tend to underperform. However, when we ran the same analysis on 6,244 currently listed U.S. stocks, the results were consistent.
One other striking finding: the average lifetime of a stock is just 10.5 years. Even if you’re confident in your ability to pick winners and time the market, the truth is that the window of opportunity is very narrow.
Stock pickers, you’ve been warned.
