# A few big winners: why owning everything catches them

> Over 20 years most companies do far worse than the index, almost half lose money and a handful make half the gains. Owning the whole market is the only sure way to own those few.

- Course: [Long-Term Investing: Index Funds, Risk and Your Own Behavior](https://productovi.com/courses/long-term-investing.md)
- Module: Why should one fund hold thousands of companies?
- Lesson 10/32, ~20 min
- Source: https://productovi.com/courses/long-term-investing/few-big-winners

## Twenty years later

**Grace:** Still April at Zapas, and your Top 10 debate with Ethan isn't over. Yesterday was about risk. Today we look at what the same 200 synthetic companies actually returned over 20 years.

**Ethan:** Easy. The index made 235%, so a typical company made about 235% too. We just pick the better half.

**Grace:** That's the intuition the data breaks. In this model the index puts an equal amount into every company at the start and holds 20 years. Its return is the average of all 200. Now look at how widely the companies scatter.

**200 synthetic companies by 20-year real return**

| 20-year real return, % | Companies |
| --- | --- |
| −100, went to zero | 7 |
| −99…0 | 86 |
| 0…100 | 27 |
| 100…300 | 35 |
| 300…1000 | 33 |
| 1000+ | 12 |

*Number of companies in each band. Synthetic data.*

**Dataset (CSV):** [200 synthetic companies (risk and 20-year real return)](https://productovi.com/datasets/long-term-investing/few-big-winners/companies_200.csv)

**Sofia:** Is this in real terms, after inflation?

**Grace:** Yes, all 20-year returns here are real and synthetic. Each company has a sector, a sensitivity to the market and its own news, like yesterday. Nothing in the file says which ones will win; that only shows at the end.

**Sofia:** The tallest bar is a loss.

**Grace:** Yes. 93 of 200 companies lost money over 20 years, and 7 of them went to zero. Count it yourself before we go on.

> **Exercise:** Using the chart of 200 synthetic companies, how many lost money over 20 years (a return below 0, including those that went to zero)?

## The typical company is not the index

**Grace:** Here's the number that surprises everyone. The median company, the one in the middle, made 11.5% in 20 years. The index made 235.4%.

**Ethan:** How can the middle company be that far below the average?

**Grace:** Because the returns are lopsided. A few companies rose more than 1,000% and pulled the average up. Statisticians call this a skewed distribution; there's a [statistics lesson on skew](/courses/statistics-for-pm-and-marketers/outliers-and-skew) if you want the details.

> **Exercise:** In the model, the median company returned 11.5% over 20 years and the index (an equal amount in each of the 200) returned 235.4%. Why is the index so far above the median?

**Ethan:** Fine, the middle is weak. But 235% over 20 years is still a great headline for the app.

**Grace:** Careful with totals. Twenty years of compounding makes any rate look huge. Convert it to a yearly figure before anyone puts it on a page.

> **Exercise:** The index of 200 synthetic companies returned 235.4% in total over 20 years. What is that a year, in percent, to one decimal?

## Where the gains came from

**Grace:** Now the part that matters for Ethan's tab. Rank all 200 by return. The top 10, just 5% of the companies, made 50.8% of all the net gains.

![Of 200 synthetic companies over 20 years, 93 lost money, 54 gained but trailed the index and 53 beat it; the top 10 alone made 50.8% of all net gains.](https://productovi.com/courses/long-term-investing/diagrams/m3-l2-few-winners.png)

*A broad fund owns the top 10 without knowing them in advance.*

**Ethan:** Then we pick those ten!

**Grace:** Name them twenty years in advance. Only 53 companies beat the index, and nobody marked them at the start. A list of ten that misses the tail gets the median, not the market.

**Sofia:** And a fund that owns all 200 gets the tail automatically.

**Grace:** Right, and it never has to be clever about it. When a small company grows into a giant, the fund's stake in it grows in value by itself. Nobody has to call the winner, and nobody has to sell a loser in a panic either.

**Ethan:** So the boring fund is quietly doing the picking for us.

**Grace:** In a sense: it keeps everyone, so it can't miss anyone. Pick the line for the explainer.

> **Exercise:** Which sentence about the 200 companies should go into Zapas's "Why own everything?" explainer?

> **Exercise:** In the Zapas model, the top 5% of companies (10 of 200) produced about half of all net gains over 20 years.

**Sofia:** So the risk of a short list isn't only the extra swing. It's also missing the few that matter.

**Grace:** Exactly, and the two risks add up. Before the newsletter, check which conclusions the data really supports and which ones it doesn't.

> **Exercise:** Which conclusions does the 200-company model support? Select all that apply.

**Ethan:** I hate how convincing this is. Write me the version for the beta newsletter, short.

> **Exercise:** Write 2–3 sentences for the Zapas beta newsletter explaining why the app owns all companies instead of picking winners. Use at least two numbers from the 200-company model.

> **Key ideas**
>
> - Single-company returns are **skewed**: a share can lose at most 100% but gain without limit.
> - In the Zapas model of 200 companies over 20 years: 93 (46.5%) lost money, 7 went to zero, the median company made 11.5%, the equal-amount index 235.4% (about 6.2% a year).
> - The top 10 companies (5%) made 50.8% of all net gains; only 53 beat the index.
> - A short list tends to get the median, not the market. A broad fund owns the future winners without having to find them.

> **Educational, not advice**
>
> This course explains how long-term investing works; it never tells you what to buy. Investments can fall, and you can get back less than you put in. Check the current rules where you live or ask a licensed professional.

**Grace:** Next: the same question for countries. Is one home market enough, or do users need the whole world?

- Previous lesson: [Company risk vs market risk: how many holdings are enough](https://productovi.com/courses/long-term-investing/company-vs-market-risk.md)
- Next lesson: [One country or the world: home markets, currency and stagnation](https://productovi.com/courses/long-term-investing/home-or-world.md)

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