Chasing the Big One

.

  By Guest Blogger Sinan Terzioglu

.

Everyone would love to find the next great stock before the rest of the market catches on. Looking back, it seems obvious that companies like Microsoft, Amazon, Apple, Google, and Nvidia were destined for greatness.

What investors often overlook is for every company that created extraordinary wealth, there were hundreds of other just as promising at the time but went on to stagnate, underperform, or suffer significant losses.

Adam Parker of Trivariate Research recently published a report titled Buy and Hold Doesn’t Work that highlights just how difficult successful stock picking has become. His research found that only 23.2% of the 500 largest U.S. stocks outperformed the S&P 500 over the last ten years, while just 27.7% beat the index over the last three years. The chart below shows a clear and persistent decline in the percentage of stocks outperforming the broader market.

In other words, roughly three out of every four stocks failed to keep pace with the S&P 500 over the last three and ten years, highlighting how difficult it has become to successfully pick individual stocks. This trend is evident not only among the largest 500 U.S. companies but also across the broader universe of the top 2,000 stocks.

Another surprising finding is how dramatically the odds have changed. After the technology bubble burst approximately 25 years ago, stock pickers were operating in a much more forgiving environment, with nearly 68% of large-cap U.S. stocks outperforming the S&P 500 over the following three years vs just 28% today.

Another issue for stock pickers is that the cost of being wrong has become much more severe. According to Parker’s research, stocks that underperformed the S&P 500 over the previous three years lagged the index by an average of 62%. That means investors were hurt not only by failing to own the market’s biggest winners, but also by owning companies that fell significantly behind the broader market.

In Parker’s view, successful stock picking has become a moving target because it now requires much more than simply buying great companies and holding them indefinitely. To outperform the market, investors increasingly need to identify new winners, recognize when former winners are losing momentum, and make ongoing portfolio changes. What makes this even harder is that every additional buy, hold, and sell decision creates another opportunity to make mistakes.

The painful lesson of Lululemon

Adding to the challenge is that companies with strong brands, growing revenues, and years of market-beating performance can eventually suffer catastrophic losses. Consider companies such as Nike and Lululemon. After years of strong performance, many stock pickers would have viewed these businesses as obvious buy-and-hold candidates for the long term. Few would have predicted that their shares could decline by more than 75% over the following five years. This highlights just how difficult it can be to determine when a successful company and its stock price have already seen its best days.

Parker’s research highlights why diversification is more important than ever. Rather than trying to predict which companies will dominate the next decade, investors can gain exposure to thousands of businesses across different countries, industries, and sectors through low-cost, broadly diversified ETFs.

One of the biggest advantages of index investing is that it adapts automatically as markets evolve. As successful companies grow and create value for shareholders, they become a larger part of the index, while weaker companies gradually become less significant. This allows investors to participate in the growth of the global economy and corporate profits without having to accurately identify tomorrow’s winners in advance or make difficult decisions about when to buy, sell, or hold individual stocks.

This helps explain why the S&P 500 has been able to deliver strong long-term returns even though many of the individual stocks that have been included in the index have performed poorly. The biggest winners receive increasingly larger weights over time, allowing investors to participate in the growth of successful companies without having to identify them in advance.

The evidence against stock picking doesn’t get better for professional fund managers who spend their careers researching companies, meeting with management teams, and selecting stocks. The latest SPIVA (S&P Indices Vs Active) Scorecard, which compares the performance of active fund managers against their benchmark indexes, found that 79% of active large-cap U.S. equity funds underperformed the S&P 500 in 2025, while 83% failed to beat the index over the past 10 years. The results are similarly discouraging for managers investing in Canadian and international equities, where most active funds have also lagged their benchmark indexes over time.

Despite this, Canadians still have nearly $2 trillion invested in actively managed mutual funds, often paying some of the highest investment fees in the world. For many investors, a low-cost ETF would likely provide a better outcome. Not only do these funds cost a fraction of what most active mutual funds charge, but history suggests they have also delivered better long-term results.

Be  careful not to blow tax shelter room

What concerns me even more is when investors combine stock picking with excessive risk-taking inside accounts such as TFSAs and FHSAs. In the hope of hitting a home run, some investors allocate a large portion of these accounts to a handful of individual stocks. While the upside can be appealing, the downside is often overlooked. TFSA and FHSA contribution room is limited and valuable. If a significant loss occurs, that contribution room is effectively gone forever. Unlike a non-registered account, there is no opportunity to claim a capital loss, and the lost tax-sheltered growth can compound into a much larger cost over time.

For most investors, these accounts are among the most valuable assets they own. Rather than using them to make concentrated bets on a small number of companies, a better approach is to hold a broadly diversified portfolio that participates in the long-term growth of global markets while reducing the risk that any single investment decision has a significant impact on their financial future.

In summary, rather than trying to predict which companies will dominate the next decade, investors are often better served by accepting that uncertainty and building portfolios accordingly. A balanced mix of equities and fixed income, diversified across countries and industries, has stood the test of time as an effective way to combine growth potential with risk management.

It may not be as exciting as trying to find the next Nvidia before everyone else, but the evidence suggests that owning a broadly diversified portfolio has been a far more reliable path to building wealth over the long term.

Sinan Terzioglu, CFA, CIM, is a financial advisor with Turner Investments, Private Client Group, Raymond James Ltd.  He served as vice-president of RBC Capital markets in New York City and VP with Credit Suisse in Toronto.

Source: https://www.greaterfool.ca/2026/10/01/chasing-the-big-one/