Odds Overwhelmingly Favor Diversification Over Stock Selection

Investors are always looking to find the next Amazon, but is trying find the next “superstock” worthwhile? New research from Professor Hendrik Bessembinder shows that most U.S. stocks don’t beat Treasury Bonds and that searching for the next superstock is likely to end in disappointment. To capture top performers and harness stocks’ power for growth, diversification is key.

Why You Diversify

Shares of Amazon have soared 49,000% since the company went public. Finding the next Amazon may be the goal of many investors. Yet just a tiny handful of stocks are responsible for most of the stock market’s historical gain. Diversification is the only way to ensure such “superstocks” are in your portfolio.

Investing vs. Speculating

Uncertainty is a constant in investing. Rather than hope for portfolio gymnastics to deal with unforeseen events, sensible investors rely on diversification and discipline. In so doing, they distinguish themselves from speculators and, we’d argue, not only enjoy a higher probability of success but a better quality of life, as well.