This complete article first appeared in Livewire on 12 January 2026
For most investors, the biggest determinant of long-term outcomes isn’t finding the next multi-bagger – it’s avoiding the handful of stocks that permanently destroy capital.
The data is unambiguous. In his landmark study Do Stocks Outperform Treasury Bills?, Professor Hendrik Bessembinder found that just 4% of listed US stocks accounted for all net wealth creation above Treasury bills since 1926, while the majority failed to outperform cash at all.
For investors, that means the damage done by owning the wrong stocks can outweigh the benefit of trying to pick the next big winner. In other words, losses are concentrated, and so are mistakes.
That asymmetry matters even more for sophisticated portfolios, where capital preservation and compounding matter as much as upside capture. Avoiding the wrong stocks can quietly do more for returns than chasing the right ones.
With that in mind, we asked ten of Australia’s sharpest investment minds, spanning ASX and global equities, to nominate their stocks to avoid for 2026 and beyond.
From James Abela - Electro Optic Systems Holdings (ASX: EOS)
Portfolio Manager of the Fidelity Future Leaders Fund and Fidelity Global Future Leaders strategy.
I'd be careful about defence. I think we're seeing companies like Rheinmetall and Axon surge in global markets, and domestically, we've seen this in stocks like DroneShield and EOS.
DroneShield has already come down a lot and so has EOS. DroneShield is likely to make money going into next year, but I would be careful about EOS. It has benefited from momentum during 2025 but it has come down as defence excitement has come down.
The sector overall has been very hot and very momentum-driven. I'll be quite cautious about stocks in this sector going into 2026.
