Toward’s the end of the 1990’s, Jim Clark, one of history’s most successful serial entrepreneurs and founder of the first internet browser, Netscape, walked into a Swiss bank to open an account and was handed a standard investor questionnaire. As Michael Lewis writes in The New New Thing:
He had not the faintest desire to “manage” that money, or to “diversify his holdings,” or to employ any of those gentle verbs that emanate from bankers and inspire people who are not bankers to hand their money over to them. At that moment Clark’s investment portfolio, such as it was, looked like this:
Healtheon: 9,500,000 shares. Estimated Market Value: 0.
Netscape: 15,500,000 shares. Estimated Market Value: $550,000,000.
Microsoft was gobbling up Netscape’s market share, and thus Netscape’s share price, and thus Clark’s wealth. And yet Clark hadn’t a thought in the world of “preserving” that wealth. He had no interest in preservation of any sort. His life was dedicated to the fine art of tearing down and building anew. He didn’t buy U.S. Treasury bonds, or stock in companies outside of Silicon Valley, or for that matter stock in anything outside the outrageously volatile Internet sector. A year or so before he had bought and sold a million shares in @Home, and made a quick $45 million. Other than that he sank his wealth in his newest company, and left it all there until the new new thing came into view.
This gorgeous financial myopia was common in the Valley, and one of the chief sources of its success. The technologist’s tendency to commit all his resources to new technology, by financing ever more new technology, had generated one of the great economic miracles in human history. Now this paunchy Swiss banker in his humid gray suit was offering up his Swiss recipe for handling money. In Clark’s mind it was a recipe only for mediocrity and stability, which came to the same thing.
As of this writing, Forbes estimates Jim Clark’s net worth at $7.6B.
But the competing pressures of preserving wealth and capitalizing on the new new thing – of diversification and concentration – aren’t reserved exclusively for the world’s billionaires. For many, this debate surfaces routinely throughout the year when restricted stock units are granted, stock options vest, or another ESPP purchase date arrives.
Hendrik Bessembinder’s updated research, One Hundred Years in the U.S. Stock Markets, has been among 2026’s most cited works, and for good reason: its wonderfully comprehensive, and the findings are both important and fascinating.
Nearly all who reference his work preach the same takeaway: embrace diversification, for concentration is a fool’s errand.
It’s important to remember that, much like the famous “rabbit or duck?” image: More than one correct viewpoint exists.
Too often, this myopic view comes at the expense of professionals receiving equity compensation (or those with otherwise concentrated positions).
What was Bessembinder’s research all about?
He examined every publicly traded stock in the United States between January 1926 and December 2025 (that included 29,754 stocks from 29,081 companies) and found that the growth of those stocks added $91 trillion in shareholder wealth above and beyond what would have been earned in cash (specifically, 1-month T-bills). That’s $91,000,000,000,000 – four commas! Perhaps his most profound finding:
$45.5 trillion – or half of all the value created in 100 years in the US stock markets – came from just 46 firms. Not 46 percent of firms. 46 total. That represents just 0.158% of the firms that issued stock during that time.
How should one interpret these numbers? Multiple viewpoints exist.
Viewpoint 1 – “The Rabbit”
Concentrated positions are futile. Diversification is the surest way to capture the market’s growth.
Bessembinder found that those 29,754 stocks exhibited a median return of -6.87%, yet a mean return of 30,621%. These statistics suggest that most firms not only fail to create wealth for shareholders, but actually lose wealth; the market only adds wealth in the aggregate because a small minority of outliers deliver stratospheric returns that more-than-compensate for the detractors. Sure enough, Bessembinder confirmed:
- 72% of stocks underperformed the market’s aggregate returns
- 59% underperformed a cash equivalent
- 52% resulted in a negative return (loss of wealth)
There’s no denying: if you pick and choose individual positions, the odds of owning a winner – a company that delivers above-market returns – are not favorable. When the aggregate returns of the market are so accessible, why would somebody risk such a high probability of underperformance?
Viewpoint 2 – “The Duck”
Concentrated holdings can produce life-changing wealth with a quickness and magnitude that diversification can’t.
Bessembinder’s research shows that 30 stocks were responsible for 43.7% of the $91 trillion of wealth creation ($39.74T). Those 30 stocks produced average annualized returns of 20.21% – about double the market’s 10.1% annualized return over the 100-year period – and those 30 stocks have an average track record of 52.3 years (several existed in 1926 and still operate).
- Imagine you were able to identify one of these all-star companies, invested $200,000, and managed to stay invested for 20 years while earning 20.21%. You would generate life-changing wealth.
There’s no denying: if your goal is to generate life-changing wealth in short order, a concentrated position in a long-term winner can unlock a speed and magnitude of wealth creation that diversification cannot compete with. The fastest and largest equity compensation windfalls have been a product of concentration.
Which of these viewpoints is correct?
Both are correct. Multiple valid viewpoints exist.
To be clear: I’m not advocating for a concentrated approach to investing or that investors disregard the merits of diversification. I’m advocating an approach that considers individual preferences and individual circumstances before prescribing a strategy.
Some investors have accumulated wealth outside of their equity grants that can support all of their life’s goals. If they want to roll the dice with their equity compensation, why shouldn’t they?
Some investors understand the risks associated with maintaining a concentrated position and are willing to make the necessary sacrifices if those risks manifest. Why shouldn’t they stay concentrated?
Some investors would rather pursue a high-probability approach to sufficient wealth than pursue a high-risk approach to unnecessary wealth. Why shouldn’t they diversify their equity grants?
So what is the correct viewpoint?
The best approach begins with education. Research like Bessembinder’s should be used to educate investors on the risks and rewards associated with concentrated and diversified investing. With that context established, investors can reflect on their personal appetite for risk-taking versus certainty.
Once investors feel informed and personal preferences are identified, near- and long-term goals and financial considerations should be brought into the fold. While investors live at both extremes, diversification and concentration exist on a spectrum; an all-or-nothing approach isn’t necessary.
Thoughtful financial planning can shed light on:
- How much of your net worth is already tied to your employer?
- How dependent (or independent) are your goals on the stock continuing to perform well?
- What are your liquidity needs in the near- and long-term, and how can your equity grants help?
- How are near- and long-term tax liabilities impacted by different divesting schedules?
- Which behavioral biases may be at work behind the scenes?
Pairing a thorough understanding of an individual’s preference for risk alongside a comprehensive understanding of financial circumstances will lead to a roadmap for equity compensation that incorporates wants and needs; a personalized combination of concentration and diversification.
Nearly every reference to Bessembinder’s research concludes that individual stock selection is a fool’s errand, and diversification is the only intelligent path forward. But in his original research Bessembinder qualified his conclusions about concentration by writing:
… the implications of these insights for optimal portfolio decisions depend both on investors’ taste for skewness and their perceived level of investing skill …
Financial advisors are right to bring research-supported insights to portfolio discussions. They shouldn’t forget to incorporate their clients’ personal preferences (or ‘taste for skewness’), too.
After all, the goal is not to determine whether concentration or diversification is universally correct; it’s to determine which tradeoffs and outcomes matter most to you.
