Stock-picking isn’t just hard, it’s a blood sport. It’s not just that picking winners is hard, according to recent research by Morgan Stanley’s Michael Mauboussin. Avoiding losers is almost impossible.
From 1985 to 2024, the median US stock suffered a maximum drawdown of 85 per cent.
This isn’t a tale of meme stocks or speculative bubbles. It’s the norm.
If you had bought a typical stock at its peak, you would have lost most of your money. Almost all stocks – 93 per cent – got cut in half at some stage.
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Even the market’s most dazzling performers were no strangers to despair. Amazon fell 95 per cent during the dot-com bust. Apple, Microsoft, and Nvidia all endured drawdowns exceeding 80 per cent.
Overall, the best stocks suffered an average maximum drawdown of 72 per cent.
Nor does time heal all wounds: more than half of stocks never regain prior highs. Those that do recover take a median of 2.5 years.
Warren Buffett’s former sidekick Charlie Munger once said if you’re not prepared to see your holdings fall 50 per cent more than once a decade, you’re not fit to be a shareholder.
Mauboussin’s data suggests he was being optimistic.
