Stocks Outperform Treasury Bills

Do Stocks Outperform Treasury Bills? (Facts And Evidence – Not What You Expected)

Hendrik Bessembinder, an academic, published a study in 2017 that went on to become widely spread and known. His hypothesis was pretty straightforward: do stocks outperform Treasury Bills?

No, most stocks fail to beat one-month Treasury Bills during their lifetime as a public company, a fact we assume few investors expected or knew. Between 1926 and 2015, only 43% of equities carried a return higher than Treasury Bills. Only 86 of 26 000 stocks made half the return.

Most investors invest in stocks because they know that they have been good investments (historically) with about 10% annual returns. But unless you have a diversified portfolio, you are likely to underperform, just like most retail traders do. Bessembinder’s results show that the odds of picking good stocks are stacked against you. Yes, stocks have been an excellent investment, but only a few select stocks have made all the difference. While the group average has been outstanding, the median stock has performed poorly. This explains why picking stock is so tricky: Most stocks fail to make much headway during their lifespan.

Stocks vs. Treasury Bills

Do Stocks Outperform Treasury Bills?

In 2017 Hendrik Bessembinder from Arizona State University published a research report called Do Stocks Outperform Treasury Bills? that looked more closely at the returns of public stocks from 1926 to 2015. You can download the report here.

The database consisted of shares listed on the American Stock Exchanges between 1926 to 2015. A total of 26,000 different shares had been listed during this period, and the following observations were made:

  • Shares have a short life: the listed median time is only seven years.
  • Simulations by choosing only one random stock per month had lower returns than a market-weighted index (such as the S&P 500, for example) in 96% of the simulations.
  • Simulations by choosing only one random stock per month made it worse than an equal-weighted index in 99% of the simulations.
  • The 1,000 best shares accounted for all excess returns in relation to treasury bills. These 1000 stocks are only 4% of the shares in the database.
  • 4 of 7 stocks failed to beat on-month Treasury Bills.
  • Only 86 stocks accounted for more than half of the return (0.33% of the universe).

Results Simulations – Table

Bessembinder went on to perform bootstrap simulations and the table below summarizes the numbers in 10,000 bootstrap simulations (one stock invested per month):

Trading Rules


Median vs. average stock

Bessembinder’s results indicate why most retail investors fail miserably (confirmed by many research reports, among them Dalbar Inc.). Picking a random stock, you are most likely to pick a “loser”.

Look at this arbitrary order of an equal-weighted stock market:

Stock 1: -19% 
Stock 2: -10% 
Stock 3: -9% 
Stock 4: -9% 
Stock 5: -8% 
Stock 6: -6% 
Stock 7: -5% 
Stock 8: -5% 
Stock 9: -4%Median
Stock 10: -3% 
Stock 11: -2% 
Stock 12: -1% 
Stock 13: 8% 
Stock 14: 10% 
Stock 15: 21% 
Stock 16: 24% 
Stock 17:105% 

The average is 5.11% of all 17 shares, even though only 5 of 17 make a positive contribution and 12 make a negative contribution. The median stock has a return of minus 4%. But because the positive five stocks rise so much, the portfolio gives a positive return.

But if someone were to choose from these 17 stocks by random selection, they would most likely choose a stock with a negative return because 12 of 17 gave a negative return (70.6% probability).

What is the solution? The easiest way, of course, is to buy a passive fund. But if you want to invest in individual stocks yourself, diversification is essential.

The Valueline Geometric Index

To better illustrate the difference between the market and the median stock, we can look at Valueline’s geometric index. This index is a proxy for the market’s performance and represents the typical retail investor’s portfolio. The index consists of the typical “median stock”. The performance since 1990 has been dismal:

Do Stocks Outperform Treasury Bills?

Relative to S&P 500, the median stock has underperformed drastically!

Which stocks were the best in the US from 1926 to 2015?

Hendrik Bessembinder writes that the following 30 stocks made 30% of all returns between 1926 and 2015:

  • Exxon

  • Apple

  • General Electric

  • Microsoft

  • IBM

  • Altria

  • General Motors

  • Johnson & Johnson

  • Wal-Mart

  • Proctor & Gamble

  • Chevron

  • Coca Cola

  • AT&T

  • Amazon

  • Du Pont

  • Google/Alphabet

  • Merck

  • Wells Fargo

  • Intel

  • Home Depot

  • PepsiCo

  • Berkshire Hathaway

  • Oracle

  • Mobil

  • Disney

  • Abbot Laboratories

  • Bristol Myers

  • Mcdonalds

  • Pfizer

Is the US stock market an outlier? No. We see the same pattern in Norway and Oslo Stock Exchange:

Do Stocks Outperform Treasury Bills? Evidence from Norway


Jørund Norang and Fridrik Agustsson, two students at the Norwegian School of Management, conducted a similar survey as Bessembinder for Oslo Stock Exchange.

The two students looked at the development from 1985 to 2017. They state that the Oslo Stock Exchange has created 2,000 billion NOK in added value, but that only 18 large companies can explain the entire value creation (only 2.7% of all IPOs in the period).

The majority of the shares do worse than risk-free interest rates!

The findings in the reports are very interesting: The stock market over time provides a very good return, but this boils down to a relatively small proportion of shares. Are you able to pick these shares? Do you think you can find some of the stocks that contribute the most over the next 30 years?

Do Stocks Outperform Treasury Bills? In short, no

The conclusion from the two surveys is that only a small majority of the shares create value. As a rule of thumb, most stocks don’t outperform Treasury Bills.

It’s like gold-digging: Most people end up with nothing – only very few with sizeable gold. The research clearly explains why most can’t beat the indices: When investing in individual stocks, there is a high probability that a randomly selected stock will do poorly.

What is the solution? The easiest way, of course, is to buy a passive fund. But if you want to invest in individual stocks yourself, diversification is very important.


Why do most investors choose stocks as an investment, and what historical returns are associated with stocks?

Hendrik Bessembinder’s 2017 study investigates whether stocks outperform Treasury Bills. Surprisingly, the study finds that, between 1926 and 2015, only 43% of equities outperformed Treasury Bills, challenging common investor assumptions. Many investors opt for stocks due to historical annual returns of around 10%. However, Bessembinder’s study emphasizes that without a diversified portfolio, investors are likely to underperform, given the odds of picking successful stocks.

What is the significance of the median stock’s performance, and how does it relate to stock market averages?

The study highlights that while the average stock market performance may be outstanding, the median stock often performs poorly. This discrepancy explains the challenge of picking successful stocks, as illustrated by the arbitrary order of an equal-weighted stock market.

What is the recommended solution for investors who want to invest in individual stocks themselves?

The easiest way for investors is to buy a passive fund for a more straightforward investment approach. However, for those interested in individual stock investments, the research emphasizes the crucial role of diversification in improving the probability of selecting successful stocks.

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