📈  Chart of the Week 5/18/2025

By Michael Allison, CFA

Why Most Stocks Are Riskier Than You Think

The case for diversification and long-term discipline

This week’s Chart spotlights a sobering reality for equity investors: individual stock drawdowns are more common—and more severe—than many realize. The Chart breaks down the percentage of Russell 1000 stocks that experienced large losses over one-, three-, and five-year periods.

The message is clear: over time, the probability that any given stock suffers a major decline is uncomfortably high.

Consider this…

Over a five-year holding period, roughly 50% of Russell 1000 stocks experienced a drawdown of 50% or more. That’s not the small-cap corner of the market—we’re talking about the 1,000 largest publicly traded U.S. companies. Stretch the time frame, and the odds of a deep drawdown grow steadily worse. Nearly 70% of these stocks fell 30% or more over five years. Even at the one-year mark, nearly 40% saw a 30% decline, and 20% dropped by 50% or more.

This reality check underscores two timeless principles:

• Individual stock risk is real, and

• Diversification remains among investors’ best defenses.

A concentrated portfolio, no matter how high-quality the names held may be, can expose investors to painful, prolonged losses. Diversification—across sectors, styles, and asset classes—helps mitigate that risk, smoothing the impact of any one holding blowing up.

The Chart also reinforces the emotional dimension of investing. Experiencing a 50% decline in a stock you hold—even one you believe in—can be psychologically brutal. Without a disciplined strategy and longer time horizon, the temptation to sell at the bottom becomes too great for many investors.

In the end, this week’s Chart is a reminder that investing is hard not just because markets are volatile—but because human behavior is as well. A diversified, rules-based portfolio combined with a long-term investment mindset remains the most reliable path through the noise and drawdowns.

Sources:

Morgan Stanley Wealth Management Global Investment Committee via FactSet; Meb Faber X post: https://x.com/barchart/status/1923061037525324126

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