A Personal Investor benefits from recognizing the limits of his knowledge. Part 3
by Mag. Dobromir Risov, BSc, October 2026
Investment risk and single stock investing
Non diversifiable risk – a portfolio of many stocks vs a portfolio of one
Non-diversifiable risk or market risk, is risk a personal investor cannot eliminate. Theory says when a personal investor holds one stock, say of the automobile manufacturer BMW, then the personal investor takes a lot of individual risk. That risk finally shows as stock price fluctuations The Personal Investor and investment risk or do you know what you are doing? Part 1 .
Two sources of individual risk are: sector – automobile, another source is the company itself: for example when the management makes mistakes, then the sector is not affected, but solely that particular company within the automobile sector. A personal investor reduces those risks by adding more stocks (shares) of other companies to his investment portfolio. For example, the DAX index consists of 40 top notch publicly traded German companies. What risk is left after buying those 40 companies, is referred as market or non-diversifiable risk.
Calculating investment risk for BMW for 2008 and 2024
A few details about BMW
BMW is the abbreviation of Bayerische Motoren Werke. BMW has its origins going back to 1910 starting operations as an aircraft engine operator. The company was saved from bankruptcy in the 1950s by a large investment by the Quandt brothers. BMW produced 2,5 million cars in 2025 and is amongst the top 10 automobile companies in terms of revenue (Wikipedia).
What are the results for 2024?
The shares of BMW declined in 2024 by 23%. The expected return for 2024 was at -0,1%. The daily risk
(measured by standard deviation) is at 1,7%. On September 11th., the stock recorded the biggest loss of 11%. Two weeks later, on September 24th, the stock recorded the highest daily return of 5,3%.
Let´s look at these results and add the DAX index to compare with. During the same year (The Personal Investor and investment risk or driving forward while looking in the rear mirror. Part 2, the DAX went up by 18%. That is a difference in favour of the DAX of 41% (Chart 1). Other performance indicators are favourable for the DAX too. When you look at the tail (of the return distribution), the highest & lowest daily returns, you note an excess negative balance for BMW of -5,5%. A DAX investment, shows also a negative balance, yet much smaller: -1%. Further I see risk overall is considerably lower: DAX is 0,7% and BMW is 1,7%. A personal investor incurred the worst of both worlds: a lower return and higher risk with BMW. Investing in the DAX, the personal investor incurred the best of both worlds: higher returns and lower risk. The results presented here, with a stock and period randomly picked by myself, are consistent with portfolio theory of Harry Markowitz. Read more here: Academic Fields in Finance .
There must be stocks in the DAX, which on their own, outperformed the DAX index. While there are such stocks, it is very very difficult, if not impossible to stock pick those in advance. While stock picking is doable and difficult, market timing is impossible. Many personal investors try though (Forecasting Markets & Stocks).
How many years until BMW shares recovered from 2008?
A good way to assess investment risk, is to look at very bad years and subsequent recovery from those. So, I chose 2008. I used a fictional investment of 1.000 € in BMW stock to answer that question. At the end of 2008, BMW stock had dropped by almost 50% (Chart 2) . A personal investor would be looking at a market price of 510 € for his 23 shares. One year later by the end of 2009, those same 23 stocks could be sold for 750€. At that point the investment is still down 25% from its starting price. Already in the second year after 2008, the investment broke even.
By the end of 2010, the price of the investment went up to almost 1.400 €. That is a 40% increase in three years – some 13% on average since 2008. Very good results by any means, extraordinary when considering 2008.
Had the personal investor kept his BMW shares beyond 2010, by the end of 2011 the investment in BMW dropped to 1.209 €. Still, that is a 5% average return across a period of four years, pre-tax. Also, it is worth noting, that DAX and BMW traded similarly during the years 2008 and 2009. After that an investment in BMW proved more lucrative than the index. The performance of 2010-11 is the opposite of the performance observed in 2024 (chart 1). In 2011 the index was still down by some 25% since the start in 2008.
… the limitations of investment risk information for the personal investor
Investment risk is temporary: both the index and the single stock recovered from the blows of 2008. It is a risk where “a personal investor cannot sell his investment for the same price every day of the holding period”. This is very important to differentiate from a permanent risk of a company going bankrupt. That would be a permanent loss of your investment. The BMW share outperformed the index in one case (2010, 2011), underperformed the index in another period (2024), and in a third period (2008, 2009) – moved very close with the index. Now, moving away from the impossible task of market timing, I show to the personal investor here Courses (List) how to combine various indices into a cohesive individual portfolio. With resources starting from 50 € monthly, a personal investor can start investing.
Frequently Asked Questions (FAQs)
What is the challenge of investing in single stocks? Investing in single stocks is motivated by wishing to outperform a broadly diversified index. As I showed in this case study, reviewing those periods in hindsight is one thing. Timing those periods in advance is impossible, with personal investors operating on shaky assumptions.
What is the challenge of index investing? Many personal investors are not satisfied with the performance of indices. This dissatisfaction has more to do with the mental attitude of the personal investor in question. That dissatisfaction leads to buying single stocks, combined with an illusion of knowledge.
Does it matter which indices a personal investor buys? Yes. It is decisive for investing success. Choosing a portfolio of indices is a craft and yet simple.
Sources:
Company info: https://en.wikipedia.org/wiki/BMW
Stock market data for 2008 and 2024: https://live.deutsche-boerse.com/equity/bmw-ag-st/price-history/historical-prices-and-volumes
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