Single Company Stock Performance in S&P 500

Picking individual stocks is challenging; most underperform

Pre-Read: Key Questions This Article Answers

• How do individual companies typically perform relative to the overall market?

• Why do most publicly traded companies underperform?

• How likely is it that an individual company will do better than the overall market?

Nearly 60% Of Individual Stocks Underperform

We detail on a separate page how more than 70% of tech companies underperform post-IPO. One might think that as you move away from recent IPOs and across other industries this dynamic fades away, but the data says otherwise.

From 1926 to today in the US, nearly 60% of US stocks REDUCED shareholder wealth (Financial Times article; Morningstar Article). If this seems confusing, you're not alone. You've likely heard that US equities have historically provided average returns of 8-10% a year over the long term --> and that is 100% true (historical S&P500 returns data). So let's connect the dots between these two data points.

US Stock Market Average Returns Are Driven By Outliers

If nearly 60% of US stocks reduce shareholder wealth over time, but the market delivered average returns of 8-10% over the same period -> the only way this could be is if the winners performed really well. And that's exactly what has happened! The exact return amounts can vary by the timeframe selected, but this outliers dynamic has been generally consistent over history. Looking at another period of time and breaking down the return profiles:

For S&P 500 Returns Between 1998 and 2017:

• The average return of the index was around 6.1% per year

• But the median return was only around 2.0% per year

• Segmenting the returns of individual stocks

  • (1) ~30% of stocks decreased in value

  • (2) ~45% of stocks increased in value, but below the market average

  • (3) ~20% of stocks delivered solid returns between 6% and 13% a year

  • (4) ~5% of stocks were outliers -> posting annual returns greater than 13% per year

• Link To Data/Analysis Here

Index returns are heavily boosted by outliers. From 1998 to 2017, ~75% of stocks posted returns below the market average and ~20% delivered modestly better than average returns. Only ~5% of stocks delivered stellar returns -> but which materially contributed to the index's overall returns.

2004 -> 2024: 6 of the Top 10 Largest US Stocks Declined

To help illustrate the outlier paradigm noted above, let's jump back 20 years to 2004. The table below details the top 10 largest companies as of 1/1/2004, and how their total company valuation (market cap) grew/shrank over the following 20 years through 2024.

Six of the 10 largest companied declined in total company value over a 20 year period; and only one of the top 10 (Microsoft) grew faster than the S&P500 index did. And results similar to this have repeated consistently over history. In general, today's "biggest and best" companies typically fail to stay in that role for decades into the future.

Company	Change In Market Cap (2004 -> 2024)
General Electric ("GE")	🔴 -44% (-2.7% per year)
Microsoft	🟢 +990% (+12.3% per year)
Exxon	🟢 +91% (+3.2% per year)
Pfizer	🔴 -39% (-2.4% per year)
Citigroup	🔴 -52% (-3.5% per year)
Wal-Mart	🟢 +113% (+3.8% per year)
Intel	🔴 -36% (-2.2% per year)
British Petroleum ("BP")	🔴 -57% (-4.0% per year)
Johnson & Johnson	🟢 +85% (+3.0% per year)
International Business Machines ("IBM")	🔴 -10% (-0.5% per year)
S&P 500 Composite Index	🟢 +387% (+6.9% per year)