How XEQT Protects You from the Next Nortel: The Case for Diversification

My uncle Dave doesn’t talk about Nortel anymore. But in the late 1990s, it was all he talked about. He worked there. His pension was there. His RRSP was loaded with Nortel stock. His neighbours were buying it. His barber was buying it. At one point, Nortel Networks made up roughly a third of the entire TSX index. It wasn’t just a stock – it was Canada’s economic identity, the proof that we could compete with Silicon Valley on the global stage.

Dave had over $400,000 in Nortel shares by mid-2000. He was 52 years old and already mentally spending his retirement. A cottage up north. Maybe a boat. He used to joke that Nortel was his financial advisor, his pension plan, and his lottery ticket all rolled into one.

By 2002, those shares were worth less than $8,000. By 2009, Nortel filed for bankruptcy and the stock went to literally zero. Dave worked until he was 71. The cottage never happened. The boat never happened. And the worst part is that Dave wasn’t reckless or stupid – he did what a huge number of Canadians were doing at the time. He trusted a single company with his financial future.

I think about Dave every time someone tells me they’ve found a stock that “can’t lose.” Every time someone on Reddit says they’re going all-in on a single name. Every time a coworker brags about their Shopify gains or their crypto position. I think about how confident Dave was, and how quickly confidence turned to devastation.

That experience is a big part of why I invest the way I do today – 100% in XEQT, spread across more than 12,000 stocks in 40+ countries, where no single company can wreck my retirement. And in this post, I want to explain exactly why single-stock concentration is one of the most dangerous risks Canadian investors face, and how broad diversification through an all-in-one ETF makes that risk essentially disappear.

1. The Graveyard of “Sure Things”

Before we get into the theory, let me walk you through the real-world carnage. These aren’t obscure penny stocks. These are companies that were widely held, broadly recommended, and considered safe bets by millions of investors and professionals alike.

Nortel Networks (2000-2009): Canada’s National Tragedy

Nortel’s collapse wasn’t just a stock market event – it was a Canadian cultural trauma. At its peak in July 2000, Nortel had a market capitalization of $398 billion and constituted roughly 33% of the entire S&P/TSX Composite Index. Think about that: one out of every three dollars invested in the Canadian stock market was in a single company.

The timeline is staggering. An investor who put $100,000 into Nortel at its peak would have watched it drop to $52,000 within three months, then to $5,100 within fourteen months, then to $378 within two years. And then to zero.

But here’s what makes Nortel especially painful for Canadian investors: because it dominated the TSX, even people who thought they were diversified through Canadian mutual funds had enormous Nortel exposure. Fund managers who were benchmarked against the TSX had to hold it. Pension funds held it. Nortel employees were encouraged to hold company stock through employee stock purchase plans. The tentacles were everywhere.

Roughly 60,000 Nortel employees eventually lost their jobs. Thousands of retirees saw their pensions slashed to a fraction of what was promised. The company’s collapse destroyed an estimated $360+ billion in shareholder value.

Valeant Pharmaceuticals (2015-2016): The Darling That Imploded

If Nortel was Canada’s first great stock disaster of the modern era, Valeant was the sequel. At its peak in August 2015, Valeant Pharmaceuticals traded at around $340 per share on the TSX and was the largest company on the Canadian stock exchange by market cap. Bill Ackman’s hedge fund had billions invested. It was the poster child for an aggressive acquisition strategy that Wall Street loved.

Then the scrutiny started. Reports emerged about hidden relationships with specialty pharmacies, aggressive drug price hikes, and accounting practices that obscured how the business actually worked. Within a year, the stock had lost over 90% of its value, falling below $30. By mid-2016, it was trading under $20. The company eventually rebranded as Bausch Health, but the damage was irreversible for investors who bought near the top.

Canadian mutual funds, pension plans, and individual investors who concentrated in Valeant saw years of gains evaporate in months.

Sino-Forest Corporation (2011): Outright Fraud

Sino-Forest was a Toronto-listed company that claimed to own hundreds of thousands of hectares of Chinese forestry plantations. It was worth over $6 billion at its peak and was held by major institutional investors including John Paulson’s hedge fund.

Then short-seller Carson Block at Muddy Waters Research published a devastating report alleging that Sino-Forest’s timber assets didn’t exist – or at least were massively overstated. The Ontario Securities Commission launched an investigation. The stock was halted, and it eventually went to zero. Complete, total wipeout. The company was a fraud.

Investors who owned Sino-Forest shares lost every dollar. This wasn’t a case of bad management or a bad economy – the assets simply weren’t real.

Home Capital Group (2017): A Run on the Bank

Home Capital Group was one of Canada’s largest alternative mortgage lenders. In early 2017, it disclosed that a significant portion of its mortgage broker channel had been submitting fraudulent income documentation with the company’s knowledge. Depositors panicked, and $2 billion in deposits fled in a matter of weeks. The stock dropped from over $30 to under $6. While Berkshire Hathaway eventually stepped in with emergency financing and the company survived, investors who held through the crisis took an 80% haircut.

Global Examples: The Same Story, Bigger Numbers

This isn’t just a Canadian problem. The same pattern plays out globally:

• Enron (2001): Once the seventh-largest company in America, it collapsed after a massive accounting fraud was uncovered. Shares went from $90 to $0.12. Employees who held Enron stock in their 401(k) plans lost their retirement savings and their jobs simultaneously.
• Wirecard (2020): A German fintech company in the DAX 30 index, worth over 24 billion euros, admitted that 1.9 billion euros of cash on its balance sheet didn’t exist. The stock fell 98% in a week. It was the largest accounting fraud in German history.
• Lehman Brothers (2008): The fourth-largest investment bank in the United States filed for bankruptcy during the financial crisis. Shares went from $86 to zero. Employees who had significant portions of their compensation in Lehman stock were wiped out.
• FTX (2022): Although technically a crypto exchange rather than a publicly traded stock, FTX’s collapse is instructive. Sam Bankman-Fried’s empire was valued at $32 billion. It went to zero in roughly a week when it became clear that customer funds had been misappropriated. Investors and depositors lost billions.

Every single one of these companies was considered safe, well-managed, or even visionary right up until the moment it wasn’t. The pattern is always the same: widespread confidence, followed by sudden and catastrophic collapse, followed by millions of people wondering how they didn’t see it coming.

2. The Math of Concentration Risk

Most people dramatically underestimate how risky it is to hold a concentrated portfolio of individual stocks. Even holding 10 or 20 names is far riskier than people realize, and the reason comes down to two things: the distribution of stock returns and survivorship bias.

Stock Returns Are Not Normal

Academic research has consistently shown that the majority of individual stocks underperform Treasury bills over their lifetime. A landmark study by Hendrik Bessembinder at Arizona State University examined every US stock from 1926 to 2016 and found that:

• 58% of individual stocks had lifetime returns that were worse than one-month Treasury bills.
• The entire net wealth creation of the US stock market was attributable to just 4% of listed companies.
• The median stock return was negative – meaning more than half of all stocks that have ever traded ultimately lost money.

Read that again. More than half of all stocks lose money over their lifetime. The overall stock market goes up because a tiny fraction of stocks generate enormous returns – the Apples, Amazons, and Microsofts – and they drag the average up. If you’re picking individual stocks, you’re essentially making a bet that you’ll identify those rare winners and avoid the majority of losers.

This is also why survivorship bias is so dangerous for stock pickers. When you look at the stock market, you see the companies that survived and thrived. You don’t see the thousands that quietly went bankrupt, were delisted, or faded into irrelevance. The stocks that show up on screens and in articles are the winners. The losers have been silently removed from the dataset.

Diversification Math: 20 Stocks Is Not Enough

There’s an old rule of thumb that says you can get “adequate diversification” with 15-20 stocks. This is dangerously misleading. While 20 stocks will reduce your portfolio’s volatility compared to holding one stock, it does very little to protect you from the kind of catastrophic, permanent losses that destroy wealth.

With 20 equally weighted stocks, each position is 5% of your portfolio. If one of those stocks goes to zero – as Nortel, Sino-Forest, Enron, and others did – you lose 5% of your entire portfolio permanently. If two go to zero, that’s 10%. And these aren’t hypothetical scenarios. Over any 20-year period, it’s not unusual for one or two companies in a portfolio of 20 to suffer catastrophic declines.

Now compare that with XEQT, where the largest single holding – Apple, as of this writing – represents roughly 3.5% of the portfolio. And that’s the biggest position across more than 12,000 stocks. The 50th-largest holding might be 0.3%. The 500th-largest might be 0.02%. If any individual company in XEQT goes to zero, the portfolio impact is negligible. You might not even notice.

3. How XEQT’s Structure Makes Single-Stock Risk Irrelevant

XEQT is built specifically to eliminate concentration risk. Here’s how it works.

XEQT holds four underlying ETFs:

• ITOT (iShares Core S&P Total U.S. Stock Market ETF) – roughly 45%
• XIC (iShares Core S&P/TSX Capped Composite Index ETF) – roughly 25%
• XEF (iShares Core MSCI EAFE IMI Index ETF) – roughly 25%
• IEMG (iShares Core MSCI Emerging Markets ETF) – roughly 5%

Together, these four ETFs hold over 12,000 individual stocks across 40+ countries, spanning every major geographic region on earth.

The diversification is extreme by design:

• No single stock exceeds roughly 3.5% of the portfolio. Even Apple, the largest company in the world by market cap, is just a small slice.
• No single country dominates. The US is the largest at around 45%, but even a total collapse of the US stock market (which has never happened) would leave 55% of your portfolio intact.
• No single sector can sink you. XEQT spans technology, financials, healthcare, energy, consumer goods, industrials, and every other sector. A collapse in any one industry is cushioned by the others.
• Automatic rebalancing keeps the allocations in line without you having to do anything.

This structure means that when the next Nortel happens – and there will be a next Nortel, we just don’t know which company it will be – your portfolio barely flinches. The failing company’s weight in the index shrinks as its stock price drops, and eventually it gets removed from the index entirely. The whole process happens automatically, silently, and without you losing sleep.

4. The “But I’ll Just Pick Good Stocks” Fallacy

I hear this one constantly. “Sure, most people can’t pick stocks, but I do my research. I read the financials. I follow the news.” With all due respect – so did every Nortel investor. So did the institutional analysts who rated Valeant a buy at $300. So did the fund managers who loaded up on Sino-Forest.

The data on professional stock picking is devastating:

• According to the S&P SPIVA Canada Scorecard, over a 15-year period, roughly 95% of actively managed Canadian equity funds underperform the S&P/TSX Composite Index after fees.
• In the US, the numbers are similar: over 15 years, roughly 92% of large-cap US funds fail to beat the S&P 500.
• Even among the small minority of funds that outperform in one period, there is almost no persistence. A fund that beats the index over 5 years is no more likely to beat it over the next 5 years than a coin flip would predict.

These are professional investors. Full-time analysts with teams of researchers, Bloomberg terminals, direct access to corporate management, and decades of experience. They have every possible advantage over retail investors, and they still can’t beat the index consistently.

If you think you can do better picking stocks on your phone during your lunch break, you’re not being confident – you’re being overconfident. And overconfidence is the most expensive cognitive bias in investing.

The reason is simple and it ties back to the efficient market hypothesis: by the time you read a piece of news, see an earnings report, or notice a trend, the market has already priced it in. The stock price already reflects that information. You’re not finding an edge – you’re finding information that thousands of faster, better-resourced investors have already acted on.

5. Canadian Home Bias Makes Concentration Risk Even Worse

If you’re a Canadian investor picking individual stocks, there’s a strong chance most of your picks are Canadian companies. This is natural – you know the brands, you follow the news, and Canadian dividends get favourable tax treatment. But it introduces a layer of concentration risk that many Canadians don’t appreciate.

The TSX is one of the most concentrated major stock markets in the world. As of 2026:

• Financials (banks and insurance) make up roughly 30-35% of the TSX.
• Energy (oil and gas) makes up roughly 15-18%.
• Materials (mining) makes up roughly 10-12%.

That means three sectors account for nearly two-thirds of the entire Canadian stock market. If you’re picking Canadian stocks, you’re almost certainly overweight in banks and oil companies, even if you think you’re diversified.

Compare that with the global market, where technology, healthcare, consumer discretionary, and industrials each have significant representation. When you invest in XEQT, roughly 75% of your money goes outside Canada, giving you exposure to sectors and companies that barely exist on the TSX. I’ve written about this extensively on my home country bias page – the 25% Canadian allocation in XEQT is actually a deliberate overweight compared to Canada’s roughly 3% share of global market cap, designed to balance tax efficiency with true diversification.

A Canadian investor who builds a portfolio of 15 Canadian stocks is almost certainly holding something like four banks, two pipeline companies, a telecom, two miners, and maybe a couple of tech names and REITs. That’s not diversification. That’s a bet on the Canadian financial and energy sectors with some window dressing.

6. Real Portfolio Comparison: Nortel All-In vs. Diversified Global

Let me make this concrete. Here’s what happened to two hypothetical investors who both had $100,000 in the year 2000.

Investor A: 100% Nortel Networks

Investor B: Global diversified equity fund (similar allocation to what XEQT holds today – roughly 45% US, 25% Canada, 25% international developed, 5% emerging markets)

Investor A lost everything. Permanently. Irreversibly. No recovery was possible because the company ceased to exist.

Investor B also took hits – the dot-com bust and the 2008 financial crisis both caused significant drawdowns. But because the portfolio was diversified across thousands of stocks in dozens of countries, no single failure could kill it. The portfolio recovered, grew, and compounded. Even starting right before one of the worst periods in market history, diversification turned $100,000 into roughly $260,000 over 25 years.

That’s the difference between concentration and diversification. It’s not about maximizing returns in the best case. It’s about surviving the worst case.

7. How XEQT Handles Company Failures Automatically

One of the most underappreciated benefits of index investing through XEQT is how seamlessly it handles company failures. You don’t have to do anything. The process is entirely automatic.

Here’s what happens when a company in XEQT starts to fail:

1. The stock price drops. As the price falls, the company’s weight in the index shrinks automatically. A company that was 0.5% of the portfolio at $50 per share might be 0.05% at $5 per share. Your exposure decreases proportionally without you selling a single share.

2. The company gets removed from the index. When a stock falls below the index’s market cap threshold, or gets delisted, or goes bankrupt, the index provider (S&P, MSCI, FTSE) removes it from the index. The ETF then sells those shares and redistributes the proceeds across the remaining holdings.

3. Your portfolio barely notices. Because the failing company’s weight had already shrunk to nearly nothing by the time it gets removed, the actual impact on your portfolio value is minimal.

This is exactly what happened with companies like Nortel in the TSX index, Enron in the S&P 500, and Wirecard in the MSCI EAFE index. The index did the work. Passive investors moved on without a scratch.

Compare this to what happens if you own individual stocks. When a company you hold starts failing, you have to make an agonizing decision: sell now and lock in losses, or hold and hope it recovers? Many investors hold, because selling feels like admitting you were wrong. And so they ride the stock from $50 to $40 to $20 to $5 to zero, paralyzed by a combination of hope, denial, and loss aversion.

With XEQT, there’s no decision to make. The system handles it. You never have to agonize over a single stock again.

8. The Emotional Toll of Single-Stock Losses vs. the Peace of Mind of Diversification

I haven’t talked much about the emotional side of this, but it matters enormously. The psychological damage of watching a concentrated position collapse is something that statistics can’t fully capture.

My uncle Dave didn’t just lose money when Nortel collapsed. He lost confidence. He lost sleep. He lost trust in the financial system. For years afterward, he kept his savings in GICs earning 2% because he couldn’t bring himself to invest in anything again. The fear of another catastrophic loss was more powerful than any rational argument about expected returns.

And Dave’s experience is tragically common. Research in behavioural finance has shown that the pain of losing money is roughly twice as powerful as the pleasure of gaining the same amount. Losing $50,000 hurts about twice as much as gaining $50,000 feels good. This is called loss aversion, and it means that a catastrophic single-stock loss doesn’t just damage your portfolio – it damages your willingness to invest at all.

The emotional benefits of diversification are real and significant:

• You never have to watch a single position destroy your portfolio. Market downturns still happen, but they’re temporary and affect the whole market, not just your one unlucky pick.
• You eliminate decision fatigue. No research, no earnings calls, no agonizing over when to sell. You buy XEQT and let it work.
• You sleep better. When someone tells me that a particular stock crashed 70% overnight, my reaction is “that’s too bad for the people who were concentrated in it.” My portfolio probably moved 0.01%.
• You stay invested. Because you’re not traumatized by a single devastating loss, you’re far more likely to maintain your investment strategy through market cycles. And staying invested is the single most important factor in long-term wealth creation.

I’ve talked to a lot of people about investing over the years. The ones who picked individual stocks and got burned almost always developed an unhealthy relationship with investing afterward – either they became compulsive portfolio-checkers consumed by anxiety, or they pulled out of the market entirely and missed years of growth. The ones who invested in broadly diversified index funds and experienced the same market downturns as everyone else were almost universally calmer, more consistent, and wealthier over time.

The best investment strategy isn’t the one with the highest theoretical return. It’s the one you can actually stick with for 30 years. And it’s much, much easier to stick with a strategy that can’t be derailed by a single company.

The Bottom Line: Diversification Is Not Optional

Let me be blunt. If you are holding individual stocks as a significant portion of your portfolio, you are taking a risk that is entirely unnecessary. You are betting that the companies you’ve chosen will be among the small minority that succeed over the long term, that none of them will turn out to be frauds, that none of them will be disrupted by technology or regulation, and that you’ll have the discipline and information to sell before a catastrophe unfolds.

History says you won’t get all of that right. The professionals can’t get it right consistently, and they do this full time.

XEQT eliminates this risk completely. For an MER of 0.20% per year, you get exposure to over 12,000 stocks across 40+ countries, automatic rebalancing, and the peace of mind that no single company, sector, or country can wreck your financial future. Every Nortel, every Valeant, every Enron of the future is already accounted for in XEQT’s structure. The portfolio is designed to absorb individual failures and keep compounding.

My uncle Dave learned the hardest possible lesson about concentration risk. You don’t have to. The tools to build a properly diversified portfolio are cheaper, simpler, and more accessible today than at any point in financial history. There is no reason to bet your retirement on a single stock, a handful of stocks, or even a single country’s stock market.

Own everything. Own it cheaply. Own it forever. That’s the formula.