OK, so let's make a better analogy. BTW, your view is not 'wrong' per se - but I don't think it gets to the point we are trying to make. Try this:
Imagine an "index" fund of 100 stocks, each trading at $100. $10,000/share. A few years later, the fund has tread water, and is at the same value. Now, let's say that it got there because half the stocks went to zero, and half doubled to $200, still $10,000/share.
Now picture 100 people who each invested in one share of the fund. None of them lost, none of them gained.
Now picture 100 other people, each who put $10,000 into one of the 100 stocks, with no duplicate buys. Half those people doubled their money, half lost everything.
On *average* - each group did the same. Assuming you don't have a crystal ball, and can't know which stocks would go belly up, you have a 50-50 chance of doubling or losing it all if you are a single stock person. Mathematically, you have not gained anything, so you have not been compensated for the risk of losing it all. You have gained the opportunity to double your money, but it is an even bet. In investment lingo, there is no 'alpha' to the position. If the odds somehow magically changed to 60-40, you could say that you are compensated. But that is a different assumption.
Another parallel is junk bonds. They pay a higher yield to compensate for the added risk over high grade bonds. That is an example of compensated risk, and there needs to be some potential 'alpha' there to attract investors.
-ERD50