The Risks and Rewards of a Concentrated Stock Position

Head over to JP Morgan to check out their terrific piece on stock market return distribution. This is the latest piece I saw about "skewness" of the stock market - the concept that a large number of stocks underperform their index and a small number vastly outperforms. The median return is worse than the average (which is the index) return. This strengthens the argument of owning the index or a broadly diversified portfolio. A concentrated portfolio of randomly picked stocks would likely underperform the index.

This chart does a good job illustrating the issue:

The piece also has a ton of examples and examines the issue for each industry (it is more of an issue for tech and miners than consumer staples).

JP Morgan: The Risks and Rewards of a Concentrated Stock Position