Of the 25,967 US common stocks in the CRSP database between July 1926 and December 2016, only 42.6% beat one-month Treasury bills over their lifetimes. Just 49.5% made any money at all. The median lifetime buy-and-hold return was minus 2.29%.
That's Hendrik Bessembinder's finding, published in the Journal of Financial Economics in 2018. It's the most useful single number for anyone whose salary and savings both ride on one company. The equity premium is real. It just isn't evenly spread, and the typical stock never earns it.
This piece is about the decision a concentrated holder faces. It isn't about how many stocks a portfolio needs to count as broad.
What the lifetime record actually looks like
Bessembinder measured every common stock listed on the NYSE, Amex and Nasdaq from July 1926 to December 2016. Each one runs from its first appearance to its last, with dividends reinvested. The distribution is lopsided in a specific way.
Only 30.8% of those stocks beat the value-weighted market over their lifetimes. Just 26.1% beat the equal-weighted market. The most frequent lifetime outcome, once returns are rounded to the nearest 5%, is a loss of 100%. Listings are short, too. The median stock sat on the database for seven and a half years.
Delisting is where the damage concentrates. Among stocks removed by an exchange, the median lifetime return was minus 91.95%. Only 9.8% finished positive, and only 6.8% beat Treasury bills.
Newer listings fared worse than older ones. Of the stocks that entered the database between 1977 and 1986, just 31.7% beat bills over their lives. The median lifetime return is negative for every entry cohort since 1977. Whatever your employer's founding date, it sits in one of those recent cohorts rather than the 1947-56 group, where 87.0% beat bills.
Bessembinder also ran a bootstrap. A strategy that held one randomly selected stock at a time from 1926 to 2016 underperformed the value-weighted market in 96% of simulations. It underperformed one-month Treasury bills in 73% of them.
Two caveats belong right next to those figures. The sample is US-only and stops at the end of 2016, so lifetime returns for stocks still trading then are truncated rather than finished. And the mean excess return across stocks is positive. It's the median that's negative. Skewness is doing the work, not a missing risk premium.
The bad outcomes don't announce themselves
J.P. Morgan's Michael Cembalest has tracked what he calls catastrophic declines since 2004: a stock that falls 70% from its peak and doesn't recover. The October 2024 update looks at decliners since 2021, and the pattern in it is uncomfortable.
Most of the catastrophic losers traded on reasonable forward price-to-earnings multiples at their peak. Most had positive profit margins. Most carried net debt below two times EBITDA. Analyst consensus at those peaks tilted heavily towards buy and strong buy, with around half the names still showing projected upside to price targets. Healthcare and biotech contributed the largest number of decliners.
The names include Moderna, Estee Lauder, PayPal and Silicon Valley Bank. None of them looked distressed at the top. That's the conclusion Cembalest draws: event risk for an individual company is close to impossible to anticipate reliably.
This is a bank's own analysis rather than peer-reviewed work, and the 2024 edition profiles a selected set of names instead of reporting a full-universe tally. It illustrates a mechanism. It doesn't establish a base rate.
Why employer stock isn't just another single stock
A concentrated position in a company you don't work for exposes your savings. A concentrated position in your employer exposes your savings and your income to the same shock. Redundancies, a suspended bonus, a frozen share plan and a falling share price tend to arrive in the same quarter.
Lisa Meulbroek put a price on that in a Harvard Business School working paper, later published in the Journal of Law and Economics. She asked what company stock is worth to an employee who can't diversify it, against its market price. Her method finds the price that would give an undiversified holder the same Sharpe ratio as the market.
The headline figure is 42%. That's the share of market value given up by an employee holding half their pension in company stock, with pension assets making up half of total wealth, over a ten-year horizon. In her framing, a plan statement showing a million in company stock is worth roughly 420,000 to the person holding it.
Time held matters more than almost anything else in her numbers. For someone holding company stock exclusively, the value sacrificed runs to 33% over three years, a mean of 68% over ten years, and a mean of 80% over fifteen. Cut the exposure to 12.5% of total wealth over ten years and the figure falls to 27%, or 16% for an average NYSE firm.
Three caveats. The inputs are 1998 CRSP return data, when the average NYSE firm carried 45% annual volatility against 22% for the diversified market, and internet firms ran roughly five times market risk. The output is a modelled private value, not a realised loss — nobody's statement shows a 42% deduction. And it assumes no dividends across the holding period.
How concentrated people actually are
Vanguard's How America Saves 2025 covers its defined contribution book through 2024. Only 8% of its plans offer company stock, but large plans dominate, so roughly one in three participants has access. Across all participants, 93% hold none, 5% hold between 1% and 20% of their balance in it, and 2% hold more than 20%.
Inside plans that do offer it, 11% of participants hold more than 20% of their balance in company stock and 2% hold more than 60%. That 11% is down from 28% in 2015. The direction of travel is clear. The tail is still there.
Plan design drives much of it. Where the employer contributed in cash, plans averaged 7% of assets in company stock. Where the employer contributed in company stock, the average was 18%. Vanguard's own reading is that participants treat the employer's choice as an endorsement, and that most of them see company stock as safer than a diversified equity fund.
Choi, Laibson, Madrian and Metrick found a similar pattern in transaction data from three large plans covering 94,191 participants between 1992 and 2000. At the firm that matched in company stock, holdings averaged 31.5% of the portfolio. At a comparable firm matching in cash, the figure was 8.1%. Their behavioural result is subtler than the usual story: participants chased returns when setting contributions, but sold into strength when they actually traded.
Both datasets are US retirement plans. UK readers accumulate employer shares through SAYE schemes, share incentive plans and vesting RSUs instead, so the plumbing differs even where the exposure doesn't.
The case against diversifying, taken seriously
The strongest objection is that concentration is how large fortunes get built, and Bessembinder's own data supports it. He calculates lifetime wealth creation of $34.82 trillion across roughly 25,300 companies. The top 1,092 firms, slightly more than 4%, account for all of the net gain. The top five account for 10.07%. Exxon Mobil alone created $1.004 trillion, or 2.88% of the total.
So the critics have a real point. Broad diversification guarantees that you'll hold the 4% in trivial size. Anyone who sold their employer's shares on a schedule through the 1990s at Microsoft gave up an enormous amount.
There's also direct evidence that some concentrated investors earn their concentration. Ivkovic, Sialm and Weisbenner studied 78,000 households at a US discount broker from January 1991 to November 1996. Households holding one or two stocks outperformed households holding three or more by 0.16 percentage points a month after a four-factor risk adjustment, just under two points a year. The gap was zero in S&P 500 names, 50 basis points a month in non-S&P 500 names, and 112 basis points a month in non-S&P 500 stocks headquartered within 50 miles of the household. That looks like an information advantage, and it survives controlling for household fixed effects.
The same paper reports the cost honestly. Concentrated households ran monthly standard deviation 4.5 percentage points higher than diversified ones. Their average Sharpe ratio was 0.12 against 0.17. Households with portfolios under $25,000 showed no significant edge at all. And the sample is one broker over six years in the 1990s.
Two things weaken that objection once it's applied to employer stock. First, the edge Ivkovic and co-authors found sits in stocks a household chose and could research, not in a position that arrived through a match or a vesting date. Second, the employer-stock literature keeps failing to find predictive skill, because allocations track past returns rather than future ones. Goetzmann and Kumar, working on more than 40,000 accounts at the same broker over 1991 to 1996, found most investors under-diversified naively, assembling holdings without regard to the correlations between them. Ivkovic and co-authors summarise the published version of that paper as concluding investors pay considerable costs for those choices.
What a diversification schedule is actually solving
A schedule is a pre-commitment device. It converts a repeated judgement call into a rule set once, which is the same logic behind what the evidence shows about written investment policy statements. The value isn't in the selling. It's in removing the question of when.
That matters because the evidence on holder behaviour isn't flattering. Choi and co-authors show contribution decisions following recent returns. Vanguard finds concentrated holders describing their employer's stock as safer than a diversified fund. Neither group is reasoning from the distribution described above.
Meulbroek's numbers show where the lever sits. Her cost of concentration climbs steeply with time held, from 33% at three years to 80% at fifteen. A schedule that shortens the average holding period does more work than one that shaves a percentage point off the weight.
The constraints are real and they aren't uniform. Vesting cliffs, dealing windows, lock-ups after a listing, tax on disposal and the loss of matched shares all shape what's possible. J.P. Morgan's 2024 note runs through the usual mechanics for larger positions — staged sales, hedging, exchange funds, gifting — and the tax treatment of each varies by jurisdiction.
Concentration is also easy to undercount. Employer stock, a sector fund and an index tracker can all point at the same industry, which is the mechanism behind how five popular funds ended up 39% in ten companies. LedgerTouch reports position weight against total portfolio value for that reason.
What would change the conclusion
Several things, and they're worth stating precisely.
Position size relative to total wealth changes the arithmetic more than anything else does. Meulbroek's cost falls from 68% of market value at full concentration to 27% at 12.5% of total wealth, both over ten years. A holding worth 5% of net worth is a different object from one worth 60%, and the second is where the difference between risk tolerance and risk capacity starts to bite.
A demonstrable information edge changes it too. Ivkovic and co-authors found one, concentrated in smaller local names among households with enough capital to diversify if they wanted to. If somebody can show that edge in their own record over years rather than quarters, the median-outcome argument weakens for them. Most people can't.
Objective changes it. If the goal is a small chance of a very large outcome rather than a reliable median, the skewed distribution is a feature rather than a flaw. That's a coherent position as long as the downside is survivable, which usually means separating the bet from the money that pays the mortgage and from sizing an emergency fund against income volatility.
New data would change it as well. Bessembinder's sample ends in 2016 and covers only US listings. Meulbroek's volatility inputs come from 1998, near a volatility peak, so her cost estimates are probably high for a stable large-cap employer today. The Ivkovic sample ends in 1996, before decimalisation and online broking reshaped retail trading. Vanguard's figures describe its own recordkeeping book, not the whole market.
What none of that touches is the correlation at the centre of the problem. Salary, bonus, share plan and pension balance all keying off one company's cash flows is a structural exposure. It's the one thing a concentrated employee holds that a diversified outside investor doesn't.