In tthe past 90 years all of the wealth creation in the stock market can be attributed to the top 4% of winners in the stock market while the remaining 96% of stocks collectively matched one-month T-bills (or cash. The Russell 3000, a representative index of the entire U.S. stock market, has more than 2,700 companies in it. Nearly 800 of those companies or around one-third of the total, are down 90% or worse from their all-time highs right now. One in five stocks are down 80% or worse from record highs.
awealthofcommonsense data and quote
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Some thoughts on that study:
https://discussion.fool.com/on-the-one-hand-jim-linked-to-resear…
That’s quite a well known study. And probably one of the most misleading studies ever done.
It’s particularly misleading (even to its authors) because the study is well constructed and presumably mathematically correct.
The problem is that the construction method contains a quirk that makes the obvious conclusion the wrong one.
To start with, bear in mind that the average company in the average year rises in value.
A “monkey with a dartboard” strategy that picks (say) 100 stocks, holds them for a year, and repeats, will do extremely well over time…
If the obvious and wrong conclusion of the study were correct, the S&P 500 equal weight index would have done terribly since 1930.
It would have a 96% allocation to firms that never beat cash, right? A seeming recipe for disaster.
But it did very well…a lot better than the S&P 500 and its cap-weight predecessors, in fact.
Because the average stock in the average year does quite well.
The seeming contradiction is explained in the linked post.
Jim
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Nearly 800 of those companies or around one-third of the total, are down 90% or worse from their all-time highs right now. One in five stocks are down 80% or worse from record highs.
These numbers don’t add up. If a third of stocks are down 90% or more, the number of stocks down 80% or more has to be higher than a third. (A fifth is not more than a third.)
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Mr. Mussel wrote from a quote: Nearly 800 of those companies or around one-third of the total, are down 90% or worse from their all-time highs right now. One in five stocks are down 80% or worse from record highs.
I’ve having a very hard time believing these numbers. Every day I calculate this sort of information on many indexes. I store the information for both one year and four year lookbacks. Their quote is based on all-time highs, so I’m not doing that, but I don’t believe there will be much difference from these numbers.
So this first table is for the NYSE for the max drop from the four year high. So just 1.51% of these stocks are down 90%!
**NYSE 4 Yr Drop**
**From To Count Percent**
-100% -90% 49 1.51%
-90% -80% 87 2.68%
-80% -70% 97 2.99%
-70% -60% 129 3.98%
-60% -50% 170 5.24%
-50% -40% 298 9.18%
-40% -30% 533 16.43%
-30% -20% 950 29.28%
-20% -10% 754 23.24%
-10% 0% 178 5.49%
This next table is for the Russell 3000 components for the max drop from their one year high. In this case, just 2.14% are down that much.
**Rus3k 1 Yr Drop**
**From To Count Percent**
-100% -90% 57 2.14%
-90% -80% 160 6.01%
-80% -70% 166 6.24%
-70% -60% 167 6.28%
-60% -50% 213 8.00%
-50% -40% 316 11.88%
-40% -30% 463 17.40%
-30% -20% 557 20.93%
-20% -10% 459 17.25%
-10% 0% 103 3.87%
Finally, here is the same as the Russell 3000 but for the Russell 2000. Now the number is rising and we hit 3.65% of the stocks in this index have fallen over ninety percent. None of these values are anywhere near 1/3! 38.54% are down over 50%!
**Rus2k 1 Yr Drop**
**From To Count** Percent
-100% -90% 69 3.65%
-90% -80% 176 9.32%
-80% -70% 168 8.89%
-70% -60% 146 7.73%
-60% -50% 169 8.95%
-50% -40% 223 11.81%
-40% -30% 269 14.24%
-30% -20% 339 17.95%
-20% -10% 260 13.76%
-10% 0% 70 3.71%
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Using gtr1, I get about 10% of Russell 3000 stocks down more than 80% from their 4-year highs, and about 3% of Russell 3000 stocks down more than 90% from their 4-year highs. This is more than usual, as expected in a Bear market, similar to 2002 and 2009. About 5% of market days since 1926 had more than 10% of Russell 3000 stocks down more than 80% from their 4-year highs. These were in the years 1931, 1932, 1933, 2000, 2001, 2002, 2003, 2008, 2009, 2020, and 2022.
Ignoring dividends would push these numbers higher, as would looking at all-time highs. Maybe to the level quoted in the OP article: “Almost 10% of the index is down 90% from their highs. Nearly 1 in 5 stocks are down 80% from their all-time highs at the moment”.
But I’m not sure what this metric is good for, beyond raising fear. It is interesting that “more than 10% of Russell 3000 stocks down 80% from highs” did not occur between 1935 and 1999. Companies seem to hang on longer now, even after their stock price has collapsed. These zombie companies have been noted in other posts.
https://gtr1.net/2013/?~R3000_DownFromHighs:h63f0.4::MktCapW…
— data —
sorted by percent of Russell 3000 stocks down more than 80% from their 4-year highs.
count count count percent percent
date R3000 <0.2ofHigh <0.1ofHigh <0.2ofHigh <0.1ofHigh
19320425 125 58 20 46.4% 16.0%
20030505 3000 392 185 13.1% 6.2%
20020503 3000 391 204 13.0% 6.8%
20010427 3000 352 151 11.7% 5.0%
20090506 3000 339 70 11.3% 2.3%
**20220510 3000 310 93 10.3% 3.1%**
19330427 101 10 1 9.9% 1.0%
19310428 203 17 0 8.4% 0.0%
20200511 3000 211 56 7.0% 1.9%
20000427 3000 164 22 5.5% 0.7%
19700528 1264 56 2 4.4% 0.2%
19740524 1723 67 9 3.9% 0.5%
20100506 3000 116 30 3.9% 1.0%
20160509 3000 101 25 3.4% 0.8%
20170509 3000 97 33 3.2% 1.1%
20040504 3000 87 19 2.9% 0.6%
20190510 3000 80 16 2.7% 0.5%
20180509 3000 78 24 2.6% 0.8%
19750523 1634 42 1 2.6% 0.1%
20080506 3000 77 21 2.6% 0.7%
20120504 3000 69 15 2.3% 0.5%
19900508 3000 60 8 2.0% 0.3%
20130508 3000 60 14 2.0% 0.5%
20210511 3000 60 18 2.0% 0.6%
20110505 3000 56 12 1.9% 0.4%
19910507 3000 50 9 1.7% 0.3%
19850513 3000 49 8 1.6% 0.3%
19990429 3000 45 3 1.5% 0.1%
19730525 1973 28 3 1.4% 0.2%
20050504 3000 41 5 1.4% 0.2%
20150508 3000 41 8 1.4% 0.3%
19880510 3000 38 10 1.3% 0.3%
19970429 3000 38 4 1.3% 0.1%
20140508 3000 37 12 1.2% 0.4%
19840514 3000 35 3 1.2% 0.1%
19930504 3000 34 4 1.1% 0.1%
19890509 3000 33 4 1.1% 0.1%
19710526 1499 14 1 0.9% 0.1%
19860513 3000 28 2 0.9% 0.1%
19920505 3000 28 2 0.9% 0.1%
19720523 1581 14 1 0.9% 0.1%
19940503 3000 26 7 0.9% 0.2%
19350424 149 1 0 0.7% 0.0%
19380418 164 1 0 0.6% 0.0%
19980429 3000 18 0 0.6% 0.0%
19340424 173 1 1 0.6% 0.6%
19830516 2906 16 1 0.6% 0.0%
19390418 183 1 0 0.5% 0.0%
19400417 187 1 0 0.5% 0.0%
19950502 3000 15 1 0.5% 0.0%
19870512 3000 14 1 0.5% 0.0%
20060504 3000 12 2 0.4% 0.1%
19820518 2409 9 2 0.4% 0.1%
19300428 270 1 0 0.4% 0.0%
19640417 994 3 0 0.3% 0.0%
19760521 1835 5 1 0.3% 0.1%
19960430 3000 8 0 0.3% 0.0%
20070507 3000 8 1 0.3% 0.0%
19630417 938 2 1 0.2% 0.1%
19770520 1908 4 0 0.2% 0.0%
19530415 489 1 1 0.2% 0.2%
19540414 495 1 1 0.2% 0.2%
19620416 840 1 0 0.1% 0.0%
19800519 2134 2 0 0.1% 0.0%
19790521 2197 2 0 0.1% 0.0%
19680419 1332 1 0 0.1% 0.0%
19780522 2116 1 0 0.0% 0.0%
19810519 2633 1 0 0.0% 0.0%
19260429 160 0 0 0.0% 0.0%
19270426 183 0 0 0.0% 0.0%
19280426 230 0 0 0.0% 0.0%
19290426 285 0 0 0.0% 0.0%
19360422 214 0 0 0.0% 0.0%
19370421 255 0 0 0.0% 0.0%
19410416 166 0 0 0.0% 0.0%
19420416 154 0 0 0.0% 0.0%
19430414 198 0 0 0.0% 0.0%
19440411 219 0 0 0.0% 0.0%
19450411 267 0 0 0.0% 0.0%
19460415 353 0 0 0.0% 0.0%
19470415 323 0 0 0.0% 0.0%
19480414 313 0 0 0.0% 0.0%
19490408 317 0 0 0.0% 0.0%
19500411 368 0 0 0.0% 0.0%
19510411 437 0 0 0.0% 0.0%
19520409 459 0 0 0.0% 0.0%
19550414 583 0 0 0.0% 0.0%
19560413 625 0 0 0.0% 0.0%
19570415 625 0 0 0.0% 0.0%
19580415 605 0 0 0.0% 0.0%
19590416 721 0 0 0.0% 0.0%
19600413 740 0 0 0.0% 0.0%
19610414 806 0 0 0.0% 0.0%
19650419 1071 0 0 0.0% 0.0%
19660418 1194 0 0 0.0% 0.0%
19670418 1223 0 0 0.0% 0.0%
19690528 1555 0 0 0.0% 0.0%
— links —
15 of the Craziest Charts Right Now, Posted May 10, 2022
“The Russell 3000 Index is made up of more than 2,700 stocks. The index itself is down 18% from all-time highs. But look at how many stocks are down much more than that: Almost 10% of the index is down 90% from their highs. Nearly 1 in 5 stocks are down 80% from their all-time highs at the moment…
For the first 18 years or so of this century, there were more people who were unemployed than there were jobs available. Now we have a record number of job openings and not enough people to fill them. Remember when people were worried about robots taking everyone’s jobs in the future?..
homebuilders can’t finish the houses they started because of the labor shortage and supply crunch.”
https://awealthofcommonsense.com/2022/05/15-of-the-craziest-…
https://discussion.fool.com/russell-2000-not-torpedoed-31125719…
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Jafisloon
I think the GTR1 link you posted is checking for high over the last 799 trading days wich is about 3 years and 1.5 months.
ratio(gprc(1),ghigh(1,799))
It is interesting to me that the low point for 2009 occurred in May, two months after the bottom in March.
Craig
2 Likes
Companies seem to hang on longer now, even after their stock price has collapsed. These zombie companies have been noted in other posts.
Who says that a share price dropping 90% from its all time high is a death sentence? We’ve seen countless examples, especially since the dot-com bubble, of companies that traded above 10 times any reasonable assessment of their real value, came back down to earth, and have lived on as thriving businesses giving later purchasers very healthy returns.
If you bought CSCO or QCOM, for example, at their all time highs you saw a roughly 90% drop in the next two years, and you’ve seen a very decent return since then.
Elan
7 Likes
These numbers don’t add up. If a third of stocks are down 90% or more, the number of stocks down 80% or more has to be higher than a third.
I emailed the author about this. His reply: “Ah whoops. The other stat was one-third were down 70%. I left that one off for some reason then transposed those. It was 11% of stocks down 90%. Will fix. Thanks for the heads up.”
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<Who says that a share price dropping 90% from its all time high is a death sentence? We’ve seen countless examples, especially since the dot-com bubble, of companies that traded above 10 times any reasonable assessment of their real value, came back down to earth, and have lived on as thriving businesses giving later purchasers very healthy returns.>
In addition to the dot-com foolishness, how about the 2007-2008 crisis?
Try C. Still down 90% from the 2007 high.
If one wants an easy check for stock highs up to 20 years back, try the perf charts at stockcharts.com.
https://stockcharts.com/freecharts/perf.php?C&n=3814&…
CSCO passed its 2000 dot-com high last year, but has again dropped about 23% below that price.
https://stockcharts.com/freecharts/perf.php?CSCO&n=5604&…
rrjjgg
CSCO passed its 2000 dot-com high last year, but has again dropped about 23% below that price.
Statistically, there’s nothing wrong with being the owner of a stock that drops 90%.
As long as you were a buyer after the drop, not before : )
Jim
10 Likes
Your 18 wheelers full of mail brought to mind a story in this mornings TV news about how bad the lost airline luggage problem is in Europe accompanied by
baggage clerk strikes. Led to SAS declaring bankruptcy.
I procrastinate when I see an inch of
paperwork to catch up on. 12 semis? If I worked at the IRS I’d quickly get a different career!
rrjjgg
Your 18 wheelers full of mail …
Doesn’t the IRS only have 3 years to dispute your tax form? Does that 3 years start when you mailed the form, or when the IRS gets around to unpacking the 18-wheeler?
I always have leaned toward filing on paper instead of online, just because they have to manually re-enter all the data from my paper forms into their computers. And figuring at some point they are likely to say, “Oh, heck with it.”
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