Can Investors Find the Few Stocks That Create Most Market Wealth?

Jim Cramer’s Optimistic Interpretation of Hendrik Bessembinder’s Research—and Why the Evidence Still Favors Diversification

Abstract: Hendrik Bessembinder’s research shows that a remarkably small number of stocks account for most long-term market wealth creation. Jim Cramer interprets that concentration as an opportunity to identify exceptional companies, while Bessembinder emphasizes the enormous cost of failing to own them. Cramer’s FANG recommendation demonstrates that visible, established companies can still produce extraordinary returns, but it does not show that investors can select such winners consistently, hold them through severe declines, and avoid plausible alternatives that underperform the market. The evidence supports stock picking as a possibility, but broad diversification as the more reliable strategy.

Jim Cramer recently highlighted Hendrik Bessembinder’s paper, Which U.S. Stocks Generated the Highest Long-Term Returns? The paper shows that a remarkably small number of stocks generate most long-term stock-market wealth.

Bessembinder treats that concentration as a powerful argument for diversification; Cramer treats it as an invitation to select exceptional companies.

The Bessembinder Evidence

Bessembinder analyzes 29,078 U.S. common stocks contained in the CRSP database from December 1925 through December 2023.

The analysis reveals:

· 51.6 percent of stocks produced negative returns over their listed lifetimes.

· Seventeen stocks produced cumulative returns exceeding five million percent.

· Yet the 17 most spectacular stocks produced an average annual compound return of only 13.47 percent. Their almost unimaginable final returns resulted mainly from compounding over exceptionally long periods.

· Nvidia recorded the highest annualized return among stocks with at least 20 years of data, at 33.38 percent.

These results build on Bessembinder’s earlier and more important paper, Do Stocks Outperform Treasury Bills? That study found that four out of every seven U.S. common stocks produced lifetime buy-and-hold returns below those of one-month Treasury bills. Even more strikingly, the best-performing 4 percent of listed companies accounted for the entire net wealth created by the U.S. stock market since 1926. The remaining 96 percent, taken together, merely matched Treasury bills.

Cramer’s Interpretation

Cramer accepts Bessembinder’s central empirical finding—that most market wealth is generated by a small number of stocks—but still maintains that a portion of an investment portfolio should be placed in individual stocks.

He argues that the extraordinary winners were not necessarily obscure companies discoverable only through luck. Many were familiar businesses—including Coca-Cola, IBM, Boeing, Deere, and Johnson & Johnson—with recognizable products, strong franchises, and long records of success. Exceptional companies, in Cramer’s view, are often visible to consumers and investors before all their gains have occurred.

Cramer is not recommending that investors abandon index funds. His proposed model appears to place approximately half of an investor’s savings in an index fund, with much of the remaining half allocated among roughly five individual growth stocks from different industries, together with some form of non-stock hedge. The index position provides broad diversification and protection against mistakes in the actively selected portion, while one or two “hero stocks” may generate enough appreciation to transform the performance of the overall portfolio.

This position is not wholly inconsistent with Bessembinder. Both agree that a few stocks create a remarkably large share of market wealth. The disagreement concerns whether investors can identify those companies with sufficient reliability and hold them long enough to capture their extraordinary returns.

Bessembinder sees a haystack in which failing to find a few crucial needles can be extremely expensive. Cramer responds that some of the needles are unusually large, shiny, and sitting in plain sight.

Comment One: FANG Was a Great Call, but It Is Not a Complete Test of Cramer’s Method

Cramer deserves real credit for introducing the term FANG—Facebook, Amazon, Netflix, and Google—on February 5, 2013, and repeatedly advocating those companies. He was not merely claiming after the fact that they had been obvious. He identified them publicly before most of their subsequent gains occurred.

Using his own calculation through the end of 2024, $1,000 invested in each of the four original FANG stocks grew from $4,000 to approximately $82,655. The same $4,000 invested in the S&P 500 grew to approximately $19,400. He also calculated that a separate $1,000 investment in Apple would have grown to nearly $18,000.

That was an outstanding call. But the comparison does not establish that exceptional stocks are generally easy to select.

Cramer has made hundreds or thousands of recommendations. A television program built around discussing several stocks every night will inevitably generate both spectacular winners and serious disappointments. Evaluating only FANG creates a selection problem: the winning recommendation is remembered precisely because it won.

A study by Jonathan Hartley and Matthew Olson examined the complete history of Cramer’s Action Alerts PLUS portfolio from 2001 through 2016. The authors found that it underperformed the S&P 500 total-return index both from its inception and from the 2005 launch of Mad Money. It also produced a lower Sharpe ratio, indicating weaker performance after accounting for volatility. That portfolio is not a perfect record of every televised recommendation, but it is much closer to a complete investable record than a retrospective examination of FANG alone.

FANG proves that Cramer can identify an extraordinary group. It does not prove that the ordinary investor can reproduce the result or that Cramer’s complete set of recommendations has beaten the market.

Comment Two: FAANG’s Success Required Investors to Endure Serious Declines

Cramer’s FAANG recommendation produced extraordinary long-term returns, but it has not outperformed in every period. In 2026 through July 11, an equal-weight FAANG portfolio gained about 4.0 percent, compared with about 10.7 percent for the S&P 500.

Its long-term success was also never smooth. An equal-weight FAANG portfolio lost nearly 44 percent in 2022, while Nvidia—another of Cramer’s great long-term successes—fell about 32 percent in 2018 and 53 percent in 2022.

A preset stop or stop-limit order intended to prevent a large loss in Nvidia could easily have removed the stock during one of its severe declines, thereby preventing the investor from receiving much of its extraordinary subsequent gain. The same is true of panic selling: an investor who correctly identifies a future winner but abandons it during a frightening decline will not capture the return that Cramer cites.

Successful implementation therefore required more than identifying the right companies. Investors also needed the financial capacity and psychological resilience to withstand substantial temporary losses without selling, even though they could not know at the time whether a decline was temporary or the beginning of permanent deterioration. That ability to remain invested through uncertainty is one of the most demanding—and least emphasized—parts of the strategy.

Comment Three: Profit-Taking and Retirement Withdrawals Change the Experiment

Cramer’s FANG calculation assumes that the investor reinvested distributions, made no withdrawals, and held the stocks through the end of 2024. That is appropriate for measuring accumulation, but less realistic for retirees or others who must sell assets to finance consumption.

Withdrawals, taxes, rebalancing, and the need to limit concentration can all reduce the amount left to compound in the winning stocks. These consumption-related issues change the calculus, but a full analysis is beyond the scope of this article.

Comment Four: Many Plausible Five-Stock Portfolios Would Have Failed

Cramer’s FAANG selections were excellent, but they were also highly concentrated in technology and communications companies. A more typical investor choosing five admired companies in 2013 might instead have selected names from Fortune’s list—such as Coca-Cola, IBM, Starbucks, Disney, or General Electric—several of which subsequently produced long periods of weak or market-lagging returns.

Many reasonable five-stock portfolios designed to beat the market therefore would not have succeeded. A more diversified way to implement Cramer’s underlying growth thesis would have been to buy a technology ETF such as the Vanguard Information Technology ETF (VGT), either instead of the individual stocks or alongside them, while retaining a broad-market fund such as an S&P 500 ETF for additional diversification.

Conclusion

Cramer and Bessembinder agree about the most important empirical fact: a remarkably small number of stocks produce a remarkably large share of long-term market wealth.

Cramer interprets this concentration as an invitation. Find the exceptional companies, hold them through temporary setbacks, and allow one or two hero stocks to transform the portfolio.

Bessembinder interprets it as a warning. The winners are rare, their identities are obvious mainly in retrospect, and the penalty for omitting them can be enormous. A broad, capitalization-weighted index owns many mediocre companies, but it also guarantees that the investor will own every future hero and that each hero will become a larger part of the portfolio as it succeeds.

Cramer’s FANG recommendation was excellent and should not be dismissed as luck merely because it is inconvenient for advocates of passive investing. Several of the companies were already prominent in 2013, and investors still had an opportunity to earn extraordinary subsequent returns.

But FANG is an example of what was possible, not a reliable estimate of what was probable. The proper comparison is not FANG against the S&P 500. It is the complete set of plausible portfolios that an investor using Cramer’s reasoning might have assembled against the S&P 500.

The investor must also do more than identify the eventual winners. The investor must avoid selling them too early, withstand severe drawdowns, resist stop-loss rules that remove them from the portfolio, manage growing concentration, and finance retirement consumption without liquidating too much of their future upside.