I don’t know if any of you remember a discussion Saul and I had two or three years ago (if I remember rightly). Ah, after some digging, here’s the thread: http://discussion.fool.com/on-selling-31631607.aspx?sort=whole#3… Discussion is near the end of the thread.
Anyway, this was a discussion about how many companies recovered after a very large drop. At the time, I got the Russell 3000 listings for a couple of different years, but never was able to carve out the time to do the analysis I wanted to, which was to get a handle on the number of companies that recovered following a big drop in share price. That’s always kind of sat at the back of my mind as unfinished business.
I’m not here to provide that analysis, unfortunately (and probably won’t ever get to it), but I do have something to share that’s I believe is related. One of our team shared this earlier today.
J.P. Morgan has done an analysis that’s a lot more detailed than anything I would have done over a much longer time frame. In it, they looked for companies that fell 70% from their peak and never recovered to anything above a 60% decline from their peak, something they labeled as a catastrophic loss. I don’t know if it answers the questions we were discussing, but it does provide some numbers to put upon that for context.
Link opens the report with a button to let you download a PDF file. http://read.jpmorgan.com/i/371035-eotm-special-edition/3?m4=…
Note, in case it’s not immediately clear, by excess return, the author means returns in excess to the alternate choice of investing in the index.