Equities (Stocks)

A share is a fractional claim on a company's assets and future earnings. That claim sits behind every creditor, which is exactly why equity is compensated more than debt over long periods and why it can go to zero when debt does not.

Single stocks carry two kinds of risk: the market's, and the company's own. Only the first is reliably compensated, because the second can be diversified away for free. This is the argument behind broad index funds, and it is reinforced by SPIVA's scorecards, which have found the large majority of active US equity funds trailing their benchmark over fifteen-year windows.

Long-run US equity returns have averaged near 10% nominal and 7% real, but that average is assembled from years of +30% and -40%. The dispersion is not noise around the return. It is the reason the return exists.