Understanding how markets function is critical when making investment decisions. This is why Hendrick Bessembinder’s 2018 study of historical stock returns was so important; it revealed to investors that the vast majority of individual stocks underperform. This information is critical. It helps us better understand why active stock-picking managers underperform at such a high frequency, and it gives us a deeper understanding of the importance of portfolio diversification–not just to mitigate risk, but also as a driver of greater returns. We’ve shared insights into this research several times, in previous recommended readings as well as in quarterly newsletters. Vanguard’s recently published paper, How to Increase the Odds of Owning the Few Stocks That Drive Returns continues to build on this great research.