Unlocking stock market success: Why you should embrace the skew

WHEN we talk about stock returns, most people assume that individual stocks should yield positive returns. That’s because the stock market has historically outperformed other asset classes like bonds.

But surprisingly, the median monthly return for a large sample of individual stocks is – drumroll, please – zero. That’s right. A study conducted by Henric Bessembinder and published in the Financial Analysts Journal in April 2023 found that on a monthly basis, individual stocks generate returns centred around zero. In fact, this paints a “half-full, half-empty” scenario. Half the stocks produce positive returns, while the other half have negative returns.

As an investor or adviser, how do you and your clients react to this? If this zero-median return statistic were the only way to look at stock performance, it would be hard to justify investing in stocks at all. Convincing clients to invest in equities would be an uphill battle, especially if they’re seeking short-term gains.