If you’re like me, you often hear people talking about how the stock market is full of opportunity.
Thousands of publicly traded companies, endless financial data, and a constant stream of “hot tips” create the illusion that great investments are everywhere.
That all may be true, but the reality is far less generous.
In fact, most stocks simply aren’t worth owning.
This idea can be uncomfortable, especially for investors who believe diversification alone guarantees success. But there’s a powerful principle that helps explain this reality. A principle that comes not from finance, but from science fiction.
It’s called Sturgeon’s Law, and it states: “90% of everything is crud.”
Coined by author and critic Theodore Sturgeon to defend the quality of science fiction writing, the concept has proven surprisingly universal. His argument was that just because you can point to bad examples of science fiction, even a LOT of examples, that does not mean science fiction as a genre is bad.
Whether you’re looking at books, movies, startups or stocks, the majority tend to be mediocre at best. And often worse than that.
The stock market is no exception.
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The Reality Behind the Numbers
There are over 4,000 publicly traded companies in the United States alone, and tens of thousands globally. On the surface, this seems like a vast field of opportunity. But when you look closer, a different picture emerges.
Many companies are unprofitable. Others are drowning in debt. Some operate in declining industries or those that have rotated out of favor. And a significant number are simply average businesses with no competitive edge, just another player in the segment with some modest market share.
Even more striking is the distribution of returns.
Over long periods, a fairly small percentage of stocks account for the majority of market gains. Research has consistently shown that only a minority of companies generate outsized, wealth-creating returns, while the majority either underperform or fail to beat basic index benchmarks.
In other words, most stocks don’t just fail to make you rich. They fail to justify the risk of owning them at all.
A company can be profitable, well-known, and stable, yet still deliver poor returns if its growth is limited or its valuation is too high. On the flip side, truly exceptional investments tend to come from companies with strong competitive advantages, consistent growth, and the ability to compound earnings over long periods.
These are rare.
And that’s exactly the point.
If 90% of stocks are mediocre or worse, then simply picking randomly—or relying on surface-level analysis—is a losing strategy. To succeed, investors must be selective.
The Case for Strict Screening Criteria
This is where Sturgeon’s Law becomes a practical investing tool. Instead of assuming most stocks are worth considering, start with the opposite assumption: most should be rejected.
That mindset alone changes everything.
Rather than asking, “Why should I buy this stock?” disciplined investors ask, “Why shouldn’t I eliminate it?”
This leads to the development of strict screening criteria. These are filters designed to separate the exceptional from the ordinary.
These criteria might include:
- Consistent revenue and earnings growth
- High returns on capital
- Strong balance sheets with manageable debt
- Durable competitive advantages (often called moats)
- Proven management teams
- Reasonable valuations relative to growth prospects
Each filter narrows the field. What starts as thousands of potential investments quickly shrinks to a manageable list of high-quality candidates.
Investing success is not about finding more stocks. It’s about finding fewer, better ones.
The Power of Saying “No”
One of the most underrated skills in investing is the ability to do nothing.
In a market full of noise, the pressure to act is constant. New trends, breaking news, and bold predictions create a sense of urgency. But successful investors understand that restraint is often more valuable than action.
If 90% of stocks aren’t worth buying, then most opportunities should be ignored.
I don’t mean missing out. I mean avoiding mistakes.
Every poor investment avoided is capital preserved. And preserved capital can be deployed into truly exceptional opportunities when they arise.
Concentration vs. Over-Diversification
Sturgeon’s Law also challenges the idea of excessive diversification.
While diversification has its place, especially for risk management, owning too many stocks can dilute returns. If most stocks are mediocre, then holding a large number of them increases the likelihood of mediocre results. That’s what investors and economists refer to as regression to the mean.
I’m not saying put everything on a single stock, of course. That’s overly concentrated. Instead, many great investors focus on a smaller number of high-conviction positions.
This doesn’t mean taking reckless risks. It means doing the work to identify the best opportunities and allocating capital accordingly.
Quality over quantity.
Finding the Exceptional 10%
If most stocks aren’t worth buying, the natural question becomes: how do you find the ones that are?
The answer lies in discipline, patience, and a willingness to dig deeper than the average investor.
Finding the exceptional 10% requires real effort. But if it were easy, everyone could do it.
It means reading financial statements, understanding business models, and evaluating long-term prospects, not just reacting to short-term price movements.
And that means making the effort to educate yourself. Again, if it were easy, everyone could do it. The analysts at Cabot didn’t just wake up one morning and say, “I’m going to be an investing expert.” They studied economics and finance. They worked in the financial industry for decades, developing their skills and experience. All to enable them to read, understand, and interpret charts, reports, and market signals.
It also means thinking independently. The best opportunities are often overlooked or misunderstood by the broader market. By the time a stock becomes universally recognized, much of the upside may already be gone.
A Shift in Perspective
Perhaps the most valuable takeaway from Sturgeon’s Law is the shift in mindset it encourages.
Instead of seeing the stock market as a big buffet where everything looks appealing, you begin to see it as a rough landscape filled with pitfalls and only a handful of diamonds.
This perspective fosters caution, discipline, and selectivity. These are essential traits for long-term success.
It also aligns with one of the core truths of investing: you don’t need to own everything. You just need to own the right things.
Final Thoughts
The idea that 90% of stocks aren’t worth buying may sound pessimistic. But in reality, it’s empowering.
It frees you from the pressure to chase every opportunity. It encourages you to focus on quality. And it reinforces the importance of a disciplined, selective approach.
In a world where most things are average, excellence stands out.
The challenge and the opportunity are to find it.
And if you want help finding the 10%, Cabot has a full range of advisory services to meet your interests, goals, and risk tolerance. All backed by the top team of independent investment analysts in the business.
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