Constituent Returns for S&P 500 Members Are Highly Skewed
comentada em 18/09/2025 12:32

The positive skew of stock returns occurs because, while the most a stock can lose is 100%, the potential positive returns for a stock are well above 100%. It also occurs because mathematically, compounding of random returns, even if symmetrically distributed, creates a skewed distribution of returns over time.
The skewed pattern of distributions results in some surprising facts about what drives overall stock market returns.
The positively skewed distribution pattern of stock returns means that, over longer periods of time, portfolio diversification is extremely important. In contrast, owning a small basket of stocks will most likely result in underperformance unless great skill and/or luck results in the concentrated portfolio containing many of the relatively few stellar performers. Therefore, we believe most investors should have a very diversified portfolio (which may or may not be an index fund) as their core holding(s). Complementing this core holding with concentrated strategies is an option for those investors who would like to enjoy the best of both worlds. While the use of concentrated portfolios is risky, it can potentially be very rewarding and for most investors, works best when combined with a diversified core.
Why Do Most Stocks Underperform Their Index? - ArchBridge Family Office