Do You Have Too Much Riding on One Company?
What the research tells us about single stock risk.
Summarized Audio Transcript from the Video Above
If you hold a significant portion of your portfolio in a single stock—or even just a few—you may be taking more risk than you realize.
For example, did you know that over 40% of all U.S. publicly traded companies have had negative lifetime returns?
You might say, “Well, just don’t pick those.”
Fair point. But here’s the problem...
Since 1990, more than 1,400 companies have entered or exited the S&P 500. So you might say, “Okay then—just pick the good ones.”
Also fair. But here’s the next problem:
The “good ones” don’t always stay good.
The Data Behind Single Stock Risk
One of the best pieces of research on this comes from JP Morgan’s study The Agony & The Ecstasy. They analyzed nearly all publicly traded U.S. stocks going back to 1980. Here’s what they found:
44% of all companies experienced a catastrophic loss—defined as a 70%+ decline in value with no recovery
42% had negative lifetime returns (they lost money)
66% underperformed the Russell 3000
Only 10% of stocks were "megawinners"—defined as beating the Russell 3000 by 500% or more
Let that sink in: most stocks didn’t add value to portfolios. In fact, they did the opposite.
You might be thinking, “Fine. Just pick the 10% that do outperform and avoid the rest.” But again… it’s not that simple.
The S&P 500 Is Constantly Rotating
Even the biggest, most dominant companies don’t stay on top.
Since 1990, over 1,400 companies have come and gone from the S&P 500. And if you look at the top 10 holdings of the S&P 500 in 1985, not one of them is still in the top 10 today. Even if you go back to just 2010, only two companies from that list remain in the top 10 in 2024.
Let’s take GE as a real-life example.
In the year 2000, GE was the largest company in the world. So, what if you bought GE then, when it was at its peak?
From 2000 to 2024, GE was basically flat. Meanwhile, the S&P 500 returned over 600% during that same stretch. You’d have held onto GE for 24 years... just to break even.
But What About the Winners?
Fair question.
Let’s look at Nvidia—probably the biggest stock winner of the modern era. Since 2000, Nvidia has returned an astonishing 123,000%.
It’s easy to look back now and say, “Why didn’t I just buy Nvidia?”
But to get that return, you would’ve had to:
Predict the rise of artificial intelligence back in 2000, and
Correctly guess that a video game chip manufacturer (which Nvidia was at the time) would become the only chip with the computing power to drive that revolution.
If you made that call 24 years ago—congratulations. You deserve every bit of that return. But most people didn’t.
So What’s the Alternative?
Diversification.
Jack Bogle, the founder of Vanguard, said it best:
“Don’t look for the needle in the haystack. Just buy the whole haystack.”
No, you won’t get Nvidia-like returns. But you’re also far less likely to suffer a GE-like loss.
Diversification gives you a smoother ride. You’re not swinging for home runs (which often lead to strikeouts)—you’re consistently hitting singles and doubles across the entire market.
Wrapping Up
Single stock risk is real.
Most individual stocks have historically destroyed value. The few that have driven the market? They’re rare—and they don’t stay at the top forever.
Diversification isn’t about missing out. It’s about staying in the game.
If you found this helpful, share it with someone who has a little too much riding on one stock. Or if you're wondering how diversified your own portfolio really is, click the link below to get a free portfolio X-Ray:
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