The Winners Curse: Too Big to Succeed?

Journal of Indexes, October 29, 2012

18 Pages Posted: 20 Jun 2012 Last revised: 29 Dec 2016

See all articles by Robert D. Arnott

Robert D. Arnott

Research Affiliates, LLC

Lillian J. Wu

Research Affiliates, LLC

Date Written: June 20, 2012


Much ink has been spilled on the perils of allowing some companies to become “too big to fail.” This assumes that governments, hence taxpayers, must foot the bill when these Top Dogs become seriously ill, while reinforcing a view that the Top Dogs, whose failure might do systemic damage, should be heavily regulated to mitigate the damage that they might cause. The flip side of this view receives scant attention: companies can become “too big to succeed.”

Indeed, the “too big to fail” ethos may create headwinds for these self-same companies that can impede their continuing success. When you are #1, you have a bright bull’s-eye painted on your back. Governments and pundits are gunning for you. Competitors and resentful customers are gunning for you. Indeed, in a world of fierce competition and serial witch hunts in the halls of government, that target is probably painted on your front and sides too. In a world that generally roots for the underdog, hardly anyone outside of your own enterprise is cheering for you to rise from world-beating success to still-loftier success.

For investors, Top Dog status — the #1 company, by market capitalization, in each sector or market — is dismayingly unattractive. We find a statistically significant tendency for top companies in each sector to underperform both the overall sector and the stock market as a whole. In an earlier U.S.-only study, we found that 59% of these Top Dogs underperformed their own sector in the next year, and two-thirds lagged their sector over the next decade. We found a daunting magnitude of average underperformance, averaging between 300 and 400 bps per year, over the next 1 to 10 years.

In this study, we have broadened the test to examine whether the “Top Dog” phenomenon is prevalent elsewhere. We find the same phenomenon in each and every market, with no exceptions. Indeed, outside the United States, the Sector Top Dogs generally underperform their own sector even more relentlessly than in the United States!

It would appear that our Top Dogs, the most beloved and winningest companies in each sector or country, are typically punished — often severely — in subsequent market action.

Suggested Citation

Arnott, Robert D. and Wu, Lillian J., The Winners Curse: Too Big to Succeed? (June 20, 2012). Journal of Indexes, October 29, 2012, Available at SSRN: or

Robert D. Arnott (Contact Author)

Research Affiliates, LLC ( email )

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Ste 900
Newport Beach, CA 92660
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949-325-8700 (Phone)
949-325-8901 (Fax)


Lillian J. Wu

Research Affiliates, LLC ( email )

620 Newport Center Dr
Suite 900
Newport Beach, CA 92660
United States

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