| Of the more than 28,000 U.S. stocks whose returns can be tracked between 1926 and 2022, nearly 59% earned less than U.S. treasury bills over their full histories, according to research by Hendrik Bessembinder, a finance professor at Arizona State University. If most stocks did that poorly, some readers would ask, how did the indexes do so well? The astonishing answer is that - over the very long haul - all the stock market's excess returns over cash has come from fewer than 4% of the companies. Let me restate this in blunter terms: Ninety-six percent of publicly traded companies deliver long-term returns that are somewhere between mediocre and lousy. That is why there are only two alternatives for savvy investors: Indexing - which guarantees that you will own that small percentage of stocks that post phenomenal returns (in diluted form due to diversification) - and ultra-careful stock selection. Some investors aren't satisfied owning an index fund and merely earning the market's return. They want outperformance - and it's not an unreasonable desire. But when you are playing a game where only one in 25 stocks delivers gangbuster returns, you need to use a discipline that enables you to protect both your profits and your principal. For The Oxford Club, trailing stops are that tool. Incidentally, trailing stops can also protect you from a savage bear market. For instance, the S&P 500 declined 37% in 2008, the first year of the financial crisis. As a result, we stopped out of every position in our Oxford Trading Portfolio that year with an average gain of 28%. Ordinarily, an average gain of 28% is nothing to crow about. But in a year when the market lost 37% of its value? I heard no complaints. History also reveals that things can get worse than they did in 2008 - and equities can stay depressed a lot longer. Italian stocks, for example, lost 78.2% in the 20 years ended in 1979. Japanese stocks lost 64.3% in the 20 years ended in 2009. Norwegian stocks lost 74.1% during the 30 years ended in 1978. German stocks lost 21.5% in the 20 years ended in 1980. And Swiss stocks lost 20.9% in the 30 years ended in 1991. Can't happen here in the U.S.? Think again. During the Great Depression, the market plunged 67% over nearly 13 years. And stocks didn't fully recover for over 16 years. Losses that occur over a decade are rare in the U.S. But they do happen. In the 120 months ended in February 2009, the market lost a total of 37.4%. Other 10-year periods when U.S. stocks posted negative returns include the 120 months ended in September 1974, August 1939, June 1921, October 1857, and April 1842. The losses in these periods ranged from 23% to 37.3%. These losses are in real terms, adjusted for inflation. In short, long-term declines do happen from time to time and individual stocks can go to zero. So, yes, you will occasionally wish that you had hung on to a stock rather than getting stopped out. But, over the long haul, the likelihood is that you will look back at 96% of your stocks and wish you had either locked in a profit or cut your loss at some point along the way. Trailing stops make sure that happens. Good investing, Alex | 
