Underperformance of Concentrated Stock Positions

30 Pages Posted: 28 Aug 2023

See all articles by Antti Petajisto

Antti Petajisto

Brooklyn Investment Group; New York University (NYU) - Department of Finance; Yale School of Management

Date Written: June 30, 2023


Contrary to standard investment advice, many high-net-worth investors hold concentrated positions in single stocks, which may constitute 10-20% or more of their total portfolio assets. While most investors recognize that lack of diversification increases the volatility of portfolio returns, they may not understand that concentrated stock positions usually contribute negatively to portfolio returns. Since 1926, the median ten-year return on individual U.S. stocks relative to the broad equity market is –7.9%, underperforming by 0.82% per year. For stocks that have been among the top 20% performers over the previous five years, the median ten-year market-adjusted return falls to –17.8%, underperforming by 1.94% per year. Since the end of World War II, the median ten-year market-adjusted return of recent winners has been negative for 93% of the time. The case for diversifying concentrated positions in individual stocks, particularly in recent market winners, is even stronger than most investors realize.

Keywords: Diversification, skewness, long-term reversal, concentrated stock position, high-net-worth investor

JEL Classification: G10, G11

Suggested Citation

Petajisto, Antti, Underperformance of Concentrated Stock Positions (June 30, 2023). Available at SSRN: https://ssrn.com/abstract=4541122 or http://dx.doi.org/10.2139/ssrn.4541122

Antti Petajisto (Contact Author)

Brooklyn Investment Group ( email )

Brooklyn, NY 11201
United States

HOME PAGE: http://www.petajisto.net

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0378 (Phone)

HOME PAGE: http://www.petajisto.net/

Yale School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

HOME PAGE: http://www.petajisto.net/

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