What if holding just a few “winning” stocks is riskier than it seems? In this episode, Ben and Cameron explore the hidden dangers of concentrated portfolios and unpack the data that makes a strong case for diversification. Drawing from research by Hendrik Bessembinder, J.P. Morgan, and others, Ben lays out the harsh reality behind individual stock returns: the odds are stacked against long-term success. From skewed return distributions and catastrophic losses to behavioral traps like the endowment effect and familiarity bias, this conversation breaks down why most stock pickers lose—and why diversification remains the only “free lunch” in investing. Whether you're holding onto a single stock for tax reasons, overconfidence, or just inertia, this episode is a must-listen reality check on portfolio risk. They also share thoughts on advisor adoption of indexing, the slow shift in Canada, and how a Rational Reminder YouTube video sparked debate between stock pickers and indexers in the comments section. For anyone navigating concentrated positions—voluntarily or otherwise—this episode is packed with data-driven insight and real-world takeaways.
Key Points From This Episode:
(0:00) Welcome to Episode 363: catching up in person and the value of working together in-office.
(1:07) Why advisors are slow to adopt indexing—and how culture, compensation, and inertia play a role.
(2:58) Demand is rising: indexing awareness among young advisors and investors continues to grow.
(4:08) Main topic: The hidden risks of individual stock concentration.
(5:40) The Nortel example: taxes, timing, and the illusion of "free" stock.
(6:51) Individual stocks are far riskier than most people realize—especially recent winners.
(9:09) Most investors hold between 3–7 stocks. Why that’s a problem.
(11:29) Portfolio concentration = fugu prepared by an amateur chef.
(12:45) Diversification reduces risk without reducing expected return.
(14:04) JP Morgan’s “Agony & Ecstasy” report: 44% of stocks suffer catastrophic losses.
(16:26) Why investors overweight the chance of a big win and underweight the risk of losses.
(17:07) The reality of skewed returns: a few big winners, many losers.
(24:35) The 2023 study on concentrated stock positions: recent top performers underperform the most.
(28:40) How many stocks do you need for real diversification? Way more than 20–30.
(32:00) Wealth dispersion and the long-term consequences of concentration.
(35:24) Why even 100-stock portfolios only beat the market 47.5% of the time.
(36:55) Taxes, control, and psychological hurdles make diversifying even harder.
(38:14) Diversification depends on your preference for risk and skewness—but beware the odds.
(39:08) Behind the scenes: Ben’s research process and content development workflow.
(43:14) Ben’s guest appearance on Morningstar’s The Long View.
(44:00) Meetups, t-shirt scarcity, and what’s next for PWL outreach.
Links From Today’s Episode: Meet with PWL Capital: https://calendly.com/d/3vm-t2j-h3p
Rational Reminder on iTunes — https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582. Rational Reminder Website — https://rationalreminder.ca/
Rational Reminder on Instagram — https://www.instagram.com/rationalreminder/
Rational Reminder on X — https://x.com/RationalRemindRational Reminder on TikTok — www.tiktok.com/@rationalreminder
Rational Reminder on YouTube — https://www.youtube.com/channel/
Rational Reminder Email — info@rationalreminder.caBenjamin Felix — https://pwlcapital.com/our-team/
Benjamin on X — https://x.com/benjaminwfelix
Benjamin on LinkedIn — https://www.linkedin.com/in/benjaminwfelix/
Cameron Passmore — https://pwlcapital.com/our-team/
Cameron on X — https://x.com/CameronPassmore
Cameron on LinkedIn — https://www.linkedin.com/in/cameronpassmore/`
Episode 346: Hendrik Bessembinder - https://rationalreminder.ca/podcast/346
Papers From Today’s Episode:
‘The Agony & The Ecstasy’ - https://privatebank.jpmorgan.com/nam/en/insights/latest-and-featured/eotm/the-agony-the-ecstasy
‘Why Index Works’ - https://www.top1000funds.com/wp-content/uploads/2017/07/Why-indexing-works.pdf
‘Underperformance of Concentrated Stock Positions’ - https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4541122
‘How Many Stocks Should You Own?’ - https://ndvr.com/journal/how-many-stocks-should-you-own
‘Fund Concentration: A Magnifier of Manager Skill’ - https://discovery.researcher.life/article/fund-concentration-a-magnifier-of-manager-skill/67964b7ccc9d3cae87761f6ef19241a0
