I recently read an interesting paper titled "Which U.S. Stocks Generated the Highest Long-Term Returns?" by prof Hendrik Bessembinder.
This paper reviewed the annualized returns on all 29,078 publicly-listed stocks in the US between December 1925 and December 2023. It found that the the best performing stock over the past century or so in the US was Altria Group (MO) (which was known as Philip Morris).
Investors who put $1 into Altria in December 1925, and then kept everything and reinvested all those dividends, ended up $2.65 Million dollars. That's a cumulative return of 265 million percent.
That comes out to an annualized return of 16.29%. This is a market beating return, which resulted in a magnificent amount of wealth, especially when you compound that over the course of almost a century (98 years to be precise).
The table below lists the common stocks with the highest cumulative returns over the past century in the US. I see a lot of familiar dividend names here:
One striking observation that can be drawn from the data in Table 2 is that the highest cumulative returns delivered by individual common stocks are attributable to annualized returns that are only moderately high. However, these moderately high returns are compounded over long time periods, averaging 92.1 years. Of course, few investors have an investment horizon of one century. However, if you can find consistent companies that can build wealth at a slow but steady fashion over long periods of time, you can build generational wealth. And probably maintain it too.
Certain industries are built to last. So are certain companies.
While future winners are hard to identify in advance, there are certain lessons to learn from studying past winners.
Notably, you are looking for:
1. Wide Moats
2. Strong Brands
3. Earnings per share growth
4. Long-term runway
5. Staying power
Thank you for reading!