The Stock Wipeout Reality
An infographic on the surprisingly high probability of individual stock failure and the power of diversification.
The Shocking Numbers
100% Loss
Most Common Outcome
The most frequent lifetime return for a single stock is a complete wipeout of invested capital.
Source: Bessembinder, 2018
55.2% of US Stocks
Majority Underperform
Fail to generate returns that outperform one-month U.S. Treasury bills over their lifetime.
Source: Bessembinder, 2020
Top 2.4% of Firms
Wealth is Concentrated
Accounted for ALL of the net global stock market wealth creation from 1991-2020.
Source: Bessembinder, 2020
The Skewed Reality of Returns
Individual stock returns don't follow a bell curve. A few "superstar" stocks generate massive gains, while most stocks cluster around zero or negative returns.
Anatomy of a Wipeout: The Path to Zero
Financial Distress
Company becomes unprofitable, debt mounts. Stock price falls below $1.00.
Involuntary Delisting
Fails to meet NYSE/Nasdaq rules. Kicked off the major exchange.
OTC Markets
Relegated to unregulated 'Pink Sheets'. Liquidity evaporates, value plummets.
Bankruptcy
Assets are liquidated. Creditors get paid first. Common shareholders get nothing.
Profile of Peril: Key Risk Factors
Small-Cap & New IPOs
Small, young companies are fragile. Nearly 50% of small-cap IPOs are delisted within 5 years.
Lack of Profitability
Consistently losing money erodes investor confidence and is a direct path to failure.
High Debt (Leverage)
High leverage amplifies losses and dramatically increases bankruptcy risk during downturns.
IPO Survival Rates: Size Matters
| Initial Market Capitalization | Remaining Listed After 5 Years | Primary Exit for Non-Survivors |
|---|---|---|
| Small-Cap (<$75 million) | 55% | Involuntary or Voluntary Delisting |
| Mid-Cap | 61% | Takeover Transaction |
| Large-Cap | 67% | Takeover Transaction |
Source: Harvard Law School Forum on Corporate Governance
The Only Free Lunch: Diversification
You can't eliminate risk, but you can avoid the catastrophic risk of a single stock wipeout.
Individual Stock
A high-stakes bet on one company's survival. Fully exposed to idiosyncratic risk (fraud, failure, disruption).
High probability of 100% loss.
Diversified Index Fund (ETF)
Owns the whole market. Guarantees you hold the few big winners that drive all the growth.
Virtually zero probability of 100% loss.