Over time, odds are this stock will do poorly compared to if he'd had a more diversified portfolio.
How are you calculating these odds? I'd naively assume that the average performance would be the same but the volatility would be much higher. Dollar cost average into it and you reduce this somewhat. I've never really understood the magic of diversity either, unless it's just to insulate against risk of ruin.
Just look at the top stocks 30 years ago and see which ones are still in business today, and of those which have beaten the market average. No stock will outperform the market over the long term. Nor will any mutual fund!
For medium time horizons it's not impossible but exceedingly unlikely.
For short time horizons it's still not remotely easy for firms to accomplish, and many do not.
This is a disappointing answer. Yes, most firms don't manage to beat the market average. The apparent answer would be that about half of them do, probably slightly fewer due to occasional runaway successes.
What you seem to be saying is that there is a complex system guaranteed to beat the expected return of buying and holding a single stock. I don't see how this can be true, although it's certainly possible that the lower volatility is preferable enough to offset the slightly greater costs.
Do you really believe that it is 'exceedingly unlikely' that a firm would exceed the market average for a 15 year period? I haven't done research into this, so I'm happy to learn. Instinctively, it would be a pretty frequent occurrence.
Are you saying that more than 95%[1] of the individual underlying stocks held by a major index fund will underperform the market over a 15 year period? If yes, how can this be? If not, what are you saying? Are you a betting man?
Surely some firms will do better than average, it's just that humans are notoriously bad at anticipating which firms those will be, hence the superior performance of index funds compared to managed mutual funds over the long term.
> I suppose it's possible for a company to exist indefinitely, but how many companies that existed 1000 years ago exist today?
How many markets that existed 1000 years ago exist today? The point I'm making is that markets are composed of individual stocks, they can't be inherently superior in terms of ROE to the stocks that the indices track.
How are you calculating these odds? I'd naively assume that the average performance would be the same but the volatility would be much higher. Dollar cost average into it and you reduce this somewhat. I've never really understood the magic of diversity either, unless it's just to insulate against risk of ruin.