In retrospect, some things seem very obvious but were revolutionary at the time. When it was first proclaimed by Claudius Ptolomy (circa 100 AD) that the earth was the center of universe, no one objected. Only kicking and screaming was the Copernican view (Nicolaus Copernicus) accepted some 1400 years later that the sun was the center point of our solar system and planets orbited it. We commonly think of physics (gravity, speed of light, electromagnetic fields) when we think of big discoveries that changed the world, but today I would like to cover the discovery of a startling fact in the financial world that was equally revolutionary: How much money did stocks actually make? What was their annual return? This year, 2026, marks the 100-year anniversary of a database that finally answered that unbelievably important question.
It seems almost impossible to believe, but for more than 300 years, no investor really knew how much you were supposed to make from a share of stock. From the very first stock exchange in Amsterdam in 1602 (though interestingly, that exchange only existed to trade shares of one stock – shares of the Dutch East India Company), or in this country with the formation of New York Stock Exchange (NYSE) in 1792 (via the Buttonwood Agreement), no one knew how much stocks earned per year. We had stockbrokers, stock financiers, and many other economic “experts”, but even with really bright and wealthy people buying stocks, no one knew how much these stocks were supposed to make. Was it 3%? Was it 5% per year? It is categorically ludicrous that people would invest without knowledge of what returns might actually result. Prior to the 1960’s it was all guesswork because no one had ever studied actual returns experience. Investors were buying in a void and had no rational expectations. No wonder some people thought the stock market was ‘stacked’ because it was all mystical. Investing should be many things, but mystical is not one of them.
That reality changed with the formation of a study in 1955 to collect, normalize and study annual stock market returns. I want to give credit to Merrill Lynch, Pierce, Fenner and Smith for funding a $50,000 grant to the University of Chicago for this seminal research to study returns of the stock market. Behind it, of course, Merrill Lynch was regularly offering their investors shares of companies and had no frigging idea what the investor was to expect in return. Merrill Lynch commissioned two University of Chicago professors (Jim Lorie and Larry Fisher) to assemble a research-caliber database of stock market returns. Because financial data was unreliable prior to 1926, that year marked the beginning of the database. Equally important, the data set was to include companies that no longer existed because they had failed or ceased to exist because of mergers, etc. This insightful move eliminated what came to be known as ‘survivorship bias’ and vastly improved the reliability of the data. I will point out that no electronic records existed at the time of this study; therefore, painstaking detail was paid to old filings and news reports of performance for the prior 35-years when the resulting data became known as the CRSP database – the Center for Research on Securities Pricing. This remarkable data set is still in existence and in 2026 was purchased by Morningstar. So what did we actually find? What did the data actually show?
Lorie and Fisher published their results in 1964[i]. In a surprise to everyone, from 1926-1960 the shares of companies actually produced a compounded return of 9%. This annualized return was much higher than anyone had previously predicted. Later data studies confirmed this research and found returns since World War II actually have compounded at 10%.[ii] Prior to this time, many people felt they could not get attractive returns because they were not part of the privileged-class who would be given insider data. Once the CRSP data base was published, numerous other researchers analyzed the results of actively-managed mutual fund managers and found these annualized returns were greater than what most of these managers delivered after fees[iii][iv].
What does a 10% return mean? How big are the implications? The answer is profound and life changing for many people. Last month I reported to you that the median household savings in the United States was just $1,000. Consider $1,000 invested and compounding at 10% per annum:
- If you had invested that sum 25-years ago, it alone would be worth 10 times as much, or $10,834
- If you invested it when the study came out in 1964, it would be worth $368,000.
- If you had the money invested for the same 100-years as the database, it would now total just shy of $14 MILLION dollars.
I scream at the top of my lungs… ANYONE can get these returns. Our system of laws, reporting regulations, transparency and intense competition in this country make it not a bet but a rational expectation. Any individual stock IS a bet, but with a properly diversified portfolio in the equity markets, you have gone from betting to investing.
Now, before I close, let me point out a looming psychological danger for young investors and that is turning investing into a ‘betting game.’ You will recall two months back in my letter to you I slammed the prediction markets (Kalshi, Polymarket) as a fools’ errand (fools’ gold?) in mimicking investing. They are unfortunately currently in the news again regarding cooked bets / insider trading. However, I am here alluding to online apps for teen investing accounts (custodial accounts) where children ages 13-17 can place trades without a parent’s approval[v]. Some of these accounts are ‘play money’ but others have real dollars of $30,000 – $100,000. A teen can buy and sell stocks, nominally to learn investing but you can easily see where this can (and has) gone. These young minds compare themselves to their peers and if they pick a stock that goes up, they think “I’ve got brains” (“Got milk” was far safer and healthier). Because of the intense market competition mentioned above, there is not a lick of truth in the idea you can pick a winner.
The research data is replete with conclusions to that effect. If the teen’s purchased stock goes up, they naturally suffer one of the 39 psychologic mistakes common to bad investing which is called ‘Confirmation Bias’ – which will result in overconfidence versus the humility markets will eventually force on wise investors. The pattern established is gambling, not investing. Parents should prevent this type of access but be aware some schools now offer this gamification to students. Education is drastically needed. In this year of our country’s 250th anniversary, you now also know of an unbelievably important 100-year anniversary in the world of finance. May the hard-learned lessons from 1776 and 1926 both contribute to your future success.
Pat Zumbusch
Found and CEO
[i] “Rate Of Return On Investments In Common Stock” (Larry Fisher and Jim Lorie, Journal Of Business, January 1964)
[ii] 1926-2025 S&P500 Returns (Matrix Book, Dimensional Fund Advisors)
[iii] “The Performance of Mutual Funds in the Period 1945-1964” (Michael Jensen, Journal Of Finance, 1967)
[iv] “False Discoveries in Mutual Fund Performance: Measuring Luck in Estimated Alphas” (Laurent Barass, Oliver Scalliet, Russell Wermers, Journal Of Finance, February 2010)
[v] “New Accounts Let Teens Trade Stocks Without a Parent’s Approval. What to Know.” (Davlin Brown and Hannah Erin Lang, The Wall Street Journal, April 2026)
