Century of Returns: Why Pharma Outperformed Oil in a 29,000-Stock Study

The Quick Take

• A study of 29,078 US stocks from 1925 to 2023 finds pharmaceuticals as a superior long-term buy-and-hold sector.
• Pharma names including Abbott posted higher compound returns than oil majors like Exxon over the 98-year window.
• The research shows most individual stocks underperform Treasury bills across their full market lifetimes.

An analysis covering 29,078 individual US common stocks traded between 1925 and 2023 has quantified long-run sector return disparities with unusually deep historical resolution. The study, spanning nearly a century of wealth creation and destruction on American exchanges, finds pharmaceutical companies delivered materially higher compound annual growth rates than oil and gas producers when measured on a buy-and-hold basis across multi-decade holding periods. The finding challenges the intuition that commodity-backed businesses with tangible assets and steady cash dividends represent the most durable path to long-run equity wealth compared with innovation-driven sectors exposed to patent cliffs and regulatory change.

Abbott Laboratories emerged from the analysis as a representative example of pharmaceutical outperformance, compounding investor capital at rates that exceeded those generated by Exxon Mobil and comparable energy majors over matching long holding windows. The structural explanation centres on pricing power: branded pharmaceutical products carry gross margins that oil refining and extraction cannot match, and successful drugs generate royalty-like cash flows once development costs are recovered. Energy companies operate as price-takers in globally arbitraged commodity markets, with profitability highly correlated to crude cycles beyond management control, limiting the degree to which retained earnings can compound at above-average rates across commodity downturns.

The broader finding that most individual stocks underperform Treasury bills over their full market lifetimes reinforces the diversification imperative underpinning modern portfolio theory. The 29,078-stock sample captures survivorship bias in reverse by including delisted and bankrupt names, producing a realistic return distribution where a small number of exceptional compounders — concentrated in technology and healthcare — account for the bulk of aggregate market wealth creation. For investors seeking long-duration equity exposure, the study evidence supports tilting toward sectors with durable pricing power and reinvestment opportunities rather than capital-intensive commodity producers whose returns revert toward the cost of capital across cycles.

Synthesized from 2 sources.