There is a famous mathematical parable called the “Wheat and chessboard problem”. It goes like this: A king, pleased with the invention of the game of chess, offered to reward the inventor. The inventor humbly asked for one grain of wheat on the first square of a chessboard, two on the second, four on the third, and so on, doubling the number of grains for each of the 64 squares. The king, thinking it a modest request, agreed.

However, as the numbers grew exponentially, by the 64th square, the total number of grains reached 18,446,744,073,709,551,615, or 18.45 quintillion – a quantity far greater than all the wheat in the kingdom, leaving the king bewildered and clearly unable to grant the reward.

Most people with some mathematical background understand the principle of compounding, yet our behaviour doesn’t always reflect an appreciation of its true power. A recent study by esteemed academic Hendrik Bessembinder from Arizona State University highlights, much like the wheat and chessboard parable, the extraordinary long-term returns of stocks.

The study analyses 29,078 publicly listed US stocks from the Centre for Research in Security Prices (CRSP) database, calculating compound returns over 98 years, from 31 December 1925 to 31 December 2023. These returns reflect a buy-and-hold strategy with dividends reinvested, covering the duration from a stock’s inclusion in the database until delisting or the end of the sample period.

The table below shows the top five stocks in this analysis and their numbers:

Source: Bessembinder, Hendrik (Hank), Which U.S. Stocks Generated the Highest Long-Term Returns? (16 July 2024). Historical performance is not an indication of future performance and any investments may go down in value.

What can we learn from these astounding numbers as well as some of the other results from the paper?

1. Stay invested, remain patient
In other words, let the miracle of compounding work its wonders. Yes, you read the table correctly – $1 invested in Altria Group grew to $2.65 million over 98 years. An annualised compound return of 16.29% translated into a staggering cumulative return of 265.53 million %. Small steps truly add up. Just like starting with a single grain on the chessboard, you can still achieve a great outcome if you’re willing to traverse all 64 squares patiently.

2. Diversify, of course
It goes without saying: don’t put all your eggs in one basket. Bessembinder’s study shows that the median cumulative compound return across all stocks was -7.41%, with 51.64% of stocks delivering negative compound returns over their lifetimes. This demonstrates that simply staying invested isn’t enough – you could still end up in the wrong stocks and lose your entire investment chasing massive returns.
But here’s the key takeaway: the mean compound return was 22,840%, meaning a $1 investment could grow to $229.4. While this is far lower than Altria Group’s staggering 265.53 million %, it’s still an incredible outcome, especially given the significantly reduced risk compared to betting on a single stock or even a handful of stocks. Moreover, the median outcome being negative and mean being strongly positive emphasises that the winners can lift the entire portfolio even if there are plenty of laggards.

3. Don’t waiver

Our emotions can easily get in the way. We get caught up in hype cycles, and our fear of missing out (FOMO) kicks in, causing us to make poor decisions. This often leads to the trap of buying high and selling low – the exact opposite of what any investor intends.

Did Altria Group deliver a steady 16.29% return every year for 98 years? Certainly not. There were times when anyone would have been tempted to sell. But remember, the temptation to sell is a luxury only available to those who still have something to sell. If your strategy has pushed you out of the market, there’s nothing left to decide. As noted earlier, most stocks in the analysis delivered negative returns over their lifetimes.

Conclusion

These three lessons are interconnected. The takeaway from the data is clear: if you stick to a well-diversified strategy in a market you believe will grow in aggregate and don’t let emotions steer you off course, the long-term results can be truly remarkable.

TTFW seeks to track the performance, before fees and expenses of the BNP Paribas Rolling Futures W0 TZ Index (the ‘Index’). The Index is designed to provide investors with exposure to gas traded on the Dutch Title Transfer Facility (TTF), which is the most liquid European gas trading hub and the benchmark for European gas prices. The Index measures total return performance based on the underlying ICE Dutch TTF Gas Futures contracts.

Nitesh Shah, head of commodities & macroeconomic research, Europe, WisdomTree, said: “The Russia-Ukraine war that started in 2022 profoundly changed the natural gas markets of Europe. Pipeline flows of natural gas from Russia to Western Europe, which used to be the main source of natural gas for the region, are now negligible. Western Europe is far more reliant on Norwegian pipeline flows and global liquified natural gas (LNG) imports.

“As the European Union navigates an energy transition, it will still be reliant on natural gas. With that in mind, there will be periodic sharp increases in European natural gas prices as the fuel is used to make up shortfalls in renewables. The Dutch Title Transfer Facility is the most representative and liquid natural gas benchmark in Europe and thus the best tool for tactical exposure to these price jumps and for hedging purposes.”

WisdomTree has an 85% market share in unleveraged natural gas exchange-traded products (ETPs) in Europe. WisdomTree European Natural Gas (TTFW) complements WisdomTree’s range of natural gas products which offer exposure to US Henry Hub natural gas, representing the most widely known gas trading hub in the US. This includes the WisdomTree Natural Gas (NGAS), a euro currency hedged alternative, as well as short and leveraged exposures. These products allow investors to express both short-term tactical and long-term strategic views.

Alexis Marinof, head of Europe, WisdomTree, added: “We have a rich heritage of innovation and launching ‘first to market’ exposures across asset classes. Investors expect WisdomTree to deliver the exposures they are unable to find elsewhere, and that’s exactly what we have done with this ETC. This launch strengthens our market-leading position in commodity ETPs and gives investors an extra tool at their disposal to navigate a dynamic market environment.”

Through this collaboration, UK and European retail investors using Trading 212 can now access WisdomTree’s pre-built and carefully constructed core and thematic model portfolios at no additional cost.

The offering includes three core model portfolios and three thematic model portfolios. The core models are designed to suit different risk tolerance levels, allowing investors to choose between conservative, moderate or aggressive portfolios. The thematic models provide multi-thematic exposure to around 15 growth themes and targeted exposure to environmental and tech investment themes.

The six model portfolios are exclusively built with exchange-traded funds (ETFs) and exchange-traded commodities (ETCs) and with an open architecture approach, allowing investors to benefit from the efficiency, flexibility and low cost of the underlying wrappers.

The core portfolios give diversified exposure to equities, bonds and commodities:
• Conservative: Provides diversified exposure across asset classes with a focus on lower risk by allocating a higher exposure to bonds. While the equity exposure is reduced compared to the moderate portfolio, it remains at a meaningful weight to enable a stable level of growth.
• Moderate: Aims to deliver steady growth potential with moderate volatility through a balanced exposure to equity, bonds, and commodities.
• Aggressive: Seeks to maximise long-term growth through higher exposure to equities. Commodities are maintained to counterbalance the higher volatility typical of this investment approach.

Thematic Portfolios:
• Multi-thematic: Delivers diversified exposure to around 15 relevant themes, across three megatrends – Technological Shifts, Environmental Pressures and Demographic & Social Shifts. Includes themes such as artificial intelligence, cybersecurity, renewable energy, decarbonisation, sustainable food, etc.
• Tech: Provides targeted exposure to the subset of tech-focused themes that we find in the Multi-thematic portfolio.
• Environmental: Provides focused exposure to the subset of environmental themes that we find in the Multi-thematic portfolio.

Adrià Beso, head of digital distribution, WisdomTree, said: “For many retail investors, building a robust portfolio from scratch may be too time-consuming and can seem daunting. This is where model portfolios can empower investors, as they remove the need for extensive research and can help allocate to a diversified portfolio which aligns with their investment needs and risk tolerance. Through our new collaboration with Trading 212, we are bringing our institutional expertise to their UK and European investors, helping them to meet their long-term investing goals.”

David Delchev, head of trading and product, Trading 212, added: “The opportunity to provide diversified portfolios powered by ETFs to our customers through an innovative provider like WisdomTree is an exciting development. WisdomTree brings a wealth of institutional knowledge and a track record of building model portfolios for professional investors, that our customers can leverage in their wealth building journey.

“These model portfolios are available on our app as ready-made pies, that are easy to invest in and do not carry any additional ongoing fees outside the fees charged by the underlying ETFs and ETCs comprising the portfolios. We believe that building wealth is a habit, and now our users can automate this with a ready-made pie.”

Trading 212 is a UK commission-free investing app, available to investors in the UK, Europe and Australia Trading 212 with £4bn in client assets and money under administration and 3 million lifetime funded accounts.

The global asset manager has appointed Oskar Geldof as head of BeNeLux.

Geldof has over 20 years’ experience and joins after a decade at Fidelity International where he was head of institutional sales for the Netherlands.

GSB Capital

The global wealth manager has hired Natasha Nathanielsz as client impact manager.

Nathanielsz brings 20 years’ experience in banking, customer service, and bank office administration support.

Evelyn Partners

The financial services company has expanded its Bristol financial planning team, hiring Bronwen Lancaster as partner, Joy Wisniewski as associate director of financial planning, and Chris Iles as a financial planner.

Lancaster has 20 years’ experience and joins Evelyn Partners from law firm, Irwin Mitchell.

Wisniewski joins from Hartsfield, where she spent 9 years, and previously worked as an advanced financial planner in banking in Australia.

Iles joins from Schroders Personal Wealth where he was a chartered financial planner.

Franklin Templeton

The investment service firm has appointed Maximilian Beeck as head of wholesale Switzerland.

Starting his career at UBS, Beeck has also previously worked at Janus Henderson and Allianz Global Investors.

Natixis Investment Managers

The asset manager has appointed Laura Kaliszewski as global head of client sustainable investing.

Kaliszewski joined Natixis in 2020 and has more than 15 years‘ experience in sustainable and impact investing, portfolio management, credit and risk with firms such as Deutsche Bank and JPMorgan.

Charles Stanley

The wealth manager has announced Abbas Owainati as head of asset allocation and Amish Patel as head of equity research.

Owainati has held roles as a macro strategist and economist at Quilter Investors.

Patel was previously a senior equity analyst at Talisman Global Asset Management and has worked at Quilter Cheviot and Janus Henderson.

WisdomTree

The asset manager has appointed Eva Casey as director of Ireland and Channel Islands sales.

Casey has 13 years’ experience in the asset management industry and joins WisdomTree from the institutional business team at State Street Global Advisers (SSGA).

Prior to SSGA, Casey spent seven years at Invesco, and has worked at Société Générale and Aviva Investors.

Walker Crips Financial Planning

The investment service has hired Joanne Crewe and Paul Gooch as financial planners.

Crewe has spent 23 years advising clients at Pannells Financial Planning Ltd before its acquisition.

Gooch also worked at Pannells Financial Planning Ltd, spending two decades advising clients and being part of the senior leadership team.

PGIM Investments

The investment manager has announced Rochus Appert as country head of Switzerland.

Appert has 30 years’ experience in the Swiss financial industry and joins from Columbia Threadneedle where he was most recently head of discretionary sales, Switzerland.

Appert has previously worked at BMO Global Asset Management, State Street Global Advisers, Credit Suisse and WestLB.

Kleinwort Hambros

The private bank has hired Gene Salerno as its new chief investment officer (CIO).

Gene brings over 20 years’ experience of cross-asset expertise and innovation.

He has headed investment strategy for SG Kleinwort Hambros, and since 2020, has been chief transformation officer.

AAB Group

The accountancy firm has hired Emma Lancaster as chief executive.

Succeeding Graeme Allan who has been at AAB for more than 16 years, Lancaster brings 15 years of board level experience in CEO and CFO roles in private equity backed, international, and people-based businesses.

Independent Governance

The pensions trusteeship and governance services has made four new hires.

This includes Yogen Mauree and Kate Tollis as trustee directors, alongside Peter Clarke as trustee manager, and Charlotte Bracken as marketing manager.

Mauree has joined from Signet Capital as head of risk management.

Tollis brings 25 years’ experience, joining from IGG as head of scheme governance and secretariat alongside roles for the British Airways (DB) pension schemes.

Newton Investment Management

The investment manager has appointed Liliana Castillo Dearth to lead the firm’s emerging market and Asia equities team.

Dearth has managed equity strategies for more than 20 years, most recently as portfolio manager at Wellington Management. Prior to Wellington, Dearth spent 18 years at AllianceBernstein.

Sarasin & Partners

The investment manager has announced six new hires.

These include two appointments from the charities team, Alexander True and Tania McLuckie – and four appointments from the private client team – Stephen Rothwell, Nick Wood, James Fishbourne and Graeme Bruce.

True, who joined Sarasin & Partners in 2014, brings over 15 years’ experience in financial services and charity portfolio management.

McLuckie has 10 years of investment experience across multi-asset and absolute return portfolios for charities, pensions, trusts and private clients.

Rothwell brings 25 years’ experience in the investment management and banking industry, working in management positions and with private clients and their advisers.

Wood, who joined Sarasin & Partners in 1998, is responsible for managing investment portfolios including trusts and pensions.

Fishbourne joined Sarasin & Partners in 2004 and is an investment manager with responsibility for private client portfolios.

Bruce who joined the firm in 2013 manages segregated international private client portfolios.

Belasko

Belasko has appointed Hannah Dunnell as managing director in its Guernsey office.

Dunnell brings 17 years’ experience in the local financial services industry, working across fund administration, corporate services and company secretarial services.

While its low correlation with equities has always been a strong argument for proponents of commodity investments, Nitesh Shah, head of commodities and macroeconomic research at WisdomTree, noted that critics have historically argued this does not hold up in periods of crisis.

However, in digging into the relative behaviour of commodities in periods of equity crisis, Shah said that WisdomTree observe that commodities have offered “very strong” diversification to an investor.

“Taking the example of the worst month for equities in the last 60 years or so, US equities lost 21.5% in October 1987, following ‘Black Monday’,” he said. “During the same month, the Bloomberg Commodity Index (BCOM) gained 2.1%.”

In fact, according to WisdomTree, commodities have outperformed equities in 19 of the worst 20 months for the S&P 500 since 1960, which Shah argued would have provided “incredible help” to investors.

More recently, Shah said commodities have outperformed every major asset class in the last two yeas by double-digit margins, with BOCM posting a gain of 12% over the calendar year.

Despite this, a survey of 600 professional investors conducted by WisdomTree and CoreData Research in September last year showed that 46% of those asked did not invest in commodities.

“We believe, whether you look at recent or long-term data, the case for broad commodity exposure is compelling,” he said. “On top of being a historically excellent diversifier, the next installment will highlight how broad commodities could complement equities in different parts of the cycle.”