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Singled Out: Historical Performance of Individual Stocks

KEY TAKEAWAYS

  • Single stocks have a wide range of returns. Only about a fifth of stocks survive and outperform the market over 20-year periods. 
  • They delist at a high rate, even those that have been around for a long time and have outperformed the market for 20 years. 
  • The chance of any single stock outperforming the market in the future is not meaningfully different when conditioning on its past performance.

Many investors end up holding large concentrated positions in single stocks, whether as the result of employee compensation or a handsomely rewarded stock selection. Familiarity with these stocks or a successful track record while holding them may discourage investors from diversifying. Unfortunately, this can lead to one of the most well-known cautionary tales in finances: tragic declines in wealth from losses in single securities. Data on the behavior of individual stocks suggests it's hardly rare for firms to underperform - or even go under, regardless of past performance.

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