If you owned Apple, Microsoft, Amazon, and Google at the beginning of this year you would be holding the four most valuable stocks in the entire U.S. stock market based on market capitalization (the stock’s price times the number of shares outstanding). Facebook clocked in at number six. Out of some 3,500 companies comprising the market, the top ten currently represent over 20% of its total value. Is this an unusual occurrence? Should we forget about the rest of the market and concentrate our investments in only these few high-flying companies?

An analysis by Dimensional Fund Advisors reveals that stock market concentration is nothing new. In 1967 IBM represented a larger portion of the market (5.8%) than Apple did at the beginning of 2020 (4.1%). And the top ten stocks at that time, which included companies such as Texaco and Kodak, comprised close to 25% of the market. In fact, it’s been rare for the stock market not to be concentrated in just a few stocks. There has never been a year when the top ten companies represented less than 12% of the total going back to 1927.

Some companies have also demonstrated remarkable longevity as leaders of the pack. In terms of the largest stocks in each decade, AT&T topped the list for four in a row starting in 1930. General Electric and Exxon could be found in the top ten for an astounding eight decades (that’s over 80 years)! Seen in that light, Amazon and Google are relative newcomers.

Despite the great returns of today’s leading company stocks (and those few in the past that had remained on top for multiple decades), Dimensional found that on average, stocks that joined the top-ten list barely outperformed the overall market over the subsequent three-year period and actually underperformed it beyond that time. This is not to suggest that Apple and the other companies won’t do well in the future. But it is mathematically a lot harder for huge companies to grow their earnings (which is one important factor impacting stock prices) as rapidly as smaller companies are able to do.

If you are searching for the holy grail of investing – being able to identify those companies that are going to return more than an overall market index fund will do – this is not it.