Today’s Chart of the Day is from a BlackRock research paper on concentrated portfolio risks. In it, they graph the top 25 performing stocks over the past 10 years, starting from 10 years ago, and their subsequent underperformance over the next 10. (Resulting in their total performance over the last 20 years.) The paper makes an impressive case to proceed with caution with examples from Yahoo, Sears, and GE. It also reminds us that 37% of all stocks actually lost money over the same 20-year period.
This reminds us of the famous quote from the father of modern finance, the great Nobel Prize laureate economist Harry Markowitz, who said on investing, “Diversification is the only free lunch in investing.”