The Power of a Few: Technology Stocks and Market Returns

Recently, market analysts have pointed out that a select group of major tech stocks, often referred to as the Magnificent Seven, are significantly influencing overall stock market returns. This is a shift from a decade ago when the FANGs—Facebook, Amazon, Netflix, Google, and potentially Apple—were at the forefront.

These company leaders frequently catch the public’s attention because they challenge the notion that the stock market eventually benefits all sectors. Notably, a market characterized by a limited number of high-performing stocks, while the rest decline, is often seen as a precursor to a downturn.

Yet, as research from Hendrik Bessenbinder at Arizona State University’s Carey School of Business suggests, it’s been more common than not for a few stocks to account for the bulk of market gains over the last century.

His findings show that from 1926 to 2025, around 30,000 stocks achieved a weighted average return exceeding 30,000%, while the median return stood at -6.9%. Remarkably, just 46 companies were responsible for half the wealth generated by the stock market in this time frame.

So, what does this mean for the everyday investor? Well, Bessenbinder tells us it really depends on how one interprets this information. Some might see the potential to earn significant wealth by investing wisely, while others may view the task of picking successful stocks as incredibly challenging.

Lessons From a Century of Returns

One major takeaway from Bessenbinder’s research is the long-term benefits of stock market investment despite the apparent short-term risks. Over the last hundred years, the stock market has managed to produce an impressive $91 trillion in wealth for investors.

In his 100-year analysis, a value-weighted portfolio of all common stocks yielded a return of $15,401 for every dollar invested. For context, U.S. Treasuries—considered among the safest investments—returned just $25.34 for every dollar invested.

“In the short term, it’s quite volatile,” Bessenbinder admits. “A drop of 50% can happen within a year. But looking at the long-term trend, the stock market has proven to be a substantial wealth generator.” He discovered that stocks which sustained their performance throughout the entire century often reaped the rewards of compounding returns, including companies like Altria, Vulcan Materials, and IBM.

Investing for Long-Term Success

People might think that aiming for a company with stable, long-lasting performance is the key, but Bessenbinder cautions that identifying these stocks isn’t as straightforward as it sounds. “There’s a substantial gap between recognizing success by looking in the rearview mirror and predicting it for the future,” he explains. “The key question for investors is whether they believe they have the necessary skills.”

Unfortunately, for many, the odds aren’t in their favor. Bessenbinder’s research reveals that only about 27.6% of individual stocks outperformed the market as a whole. In fact, investors who put their money into roughly 60% of the stocks in his analysis would have seen their wealth decrease.

For a concrete illustration, last year, a whopping 79% of large corporate equity fund managers could not keep pace with the S&P 500, according to data from S&P Dow Jones Indices. This continues a troubling trend that’s persisted for 16 years—more than half of professional investors have consistently underperformed the index.

“It’s revealing how even those who make this their profession struggle,” remarks Sam Stovall, chief investment strategist at CFRA.

Due to these realities, experts like Stovall recommend maintaining a broadly diversified stock portfolio. This increases your chances of owning both big winners and the inevitable losers, thus preventing one poor investment from badly affecting overall performance.

Could focusing solely on picking the best stocks lead to higher profits? Sure, but most retail investors aiming to build wealth while minimizing losses might find it wiser to adopt a more conservative strategy. Doug Bone Perth, a financial planner, advises that for most individuals, participating in the market over the long haul as passive investors, while keeping costs in check and managing emotions during tough times, is the best approach. “These proven methods,” he notes, “are what ultimately yield returns.”