Since 1926, Entire Market Gain Is Due To Four Percent Best Performers

Why do active managers underperform broad-based stock indexes? Hendrik Bessembinder of Arizona State thinks he might have the answer. The vast majority of stocks have failed to outperform T-Bills, he points out in a study. It is only a small percentage of stocks that lead indexes higher. On a statistical basis, selecting individual issues means the odds are stacked against the stock picker from the start.

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When Bessembinder looks at the title of his August 2017 study, “Do Stocks Outperform Treasury Bills?” he considers it “nonsensical.” After all, the fact that long-term stock market investments perform better than short-term, T-Bills has been extensively documented, he notes.

“The degree to which stock markets...