The main threat is if you're not diversified enough.  You'll end up with excess company and industry risk if you hold a handful of stocks.  The possibility that one of your stock picks can go bankrupt is real, as we saw with many companies in the past - like Enron, PanAM, Eastern Airlines, General Motors, Toys-R-Us, etc.

Survivorship bias refers to the fact that problematic companies with great financial difficulties get removed from key benchmark indices as soon as they no longer meet the requirements for staying in the index.  This means that it is highly unlikely for a benchmark index like the S&P 500, Russell 1000, MidCap 400, or Russell 2000 to ever go to zero.  This is very reassuring to long-term stock investors. 

Yes. As we see with below investment-grade bond issues especially, the probability of default is real.  Why would an investor concentrate his/her risk by loading up on one bond issuer when he/she can buy a bond fund instead?  With hundreds of issuers inside the portfolio, the risk of default is minimized and diversified away. Even if it means paying an extra 30 basis points per year or so - the reduced risk is worth it. 

The default rate for high yield bond issuers approaches 15% during recessions.  For investment-grade bonds, the default rate during recessions is less than 5%.

False.  Value strategies actually under-performed growth strategies in 2008, by slightly less than 1%.  So much for getting protection from bargain stocks.

The only asset class that generated positive returns were investment-grade treasury bonds.  The intermediate U.S. Treasury bond fund IEF generated a positive total return of 17.9% in 2008 while the S&P 500 was down 36.8%.

Buffett's BRKA and BRKB suffered drawdowns in excess of 55% from December 2007 to February 2009.  The sage of Omaha's net worth was down by over $30 billion during this period.  At least he put his money where his mouth was.

Some value strategies came pretty close to matching the total returns of the broad stock market indices, but none came close to the performance of midcap value stock funds on a real return as well as on a risk-adjusted basis.

High yield funds (like PHK, DBBR, MORT, etc.) are dangerous because they slap leverage onto already leveraged positions.  This is much like taking out a home equity loan on top of a mortgage on a home.  With the excess leverage, capital gains/losses are magnified. During recessions, this can be catastrophic.