Edward Conard

Top Ten New York Times Bestselling Author

  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
Upside of Inequality Oxford Unintended Consequences

AI Summary. An analysis of more than 6,500 companies' stock prices over four decades finds a median maximum drawdown of 85% taking 2.5 years from peak to trough, with the median stock recovering only to 90% of its prior peak and about 54% never returning to their previous high.

Michael Mauboussin and Dan Callahan Morgan Stanley
Date Posted:

Btw 1985 and 2024, the median drawdown for 6,500 US stocks was 85%, with a duration of 2.5 years from peak to trough, and another 2.5 years to recovery. More than one-half of all stocks never recover to their prior highs. @mjmauboussin

How deep do typical stock drawdowns run, and do stocks recover?

Core argument: Across more than 6,500 companies from 1985 to 2024, the median maximum stock price drawdown was 85 percent, taking 2.5 years from peak to trough, while the average drawdown was 81 percent over 3.9 years.

Exhibit 1 shows the maximum drawdown and recovery results for the stocks of more than 6,500 companies from 1985 to 2024. We calculate the drawdowns using price changes rather than total returns. The median drawdown was 85 percent and the time from peak to trough was 2.5 years. The average drawdown was a little lower, 81 percent, and took 3.9 years. The median stock’s recovery from its maximum drawdown is 90 percent of the prior peak price (par), which means it fails to return to its past high. In fact, about 54 percent of stocks never return to par after hitting bottom. The median time to go from trough to par, 2.5 years, is the same as it took to go from peak to trough. The average recovery, at nearly 340 percent of par, is a lot higher than the median recovery because of the skewness in the data. This tells you that some stocks produced very high returns off of the bottom. As with the medians, the time it takes to drop from peak to trough is roughly the same as it takes to recover.

Takeaways by Macro Roundup® AI

  1. Across more than 6,500 companies from 1985 to 2024, the median maximum stock price drawdown was 85 percent, taking 2.5 years from peak to trough, while the average drawdown was 81 percent over 3.9 years.
  2. The median stock recovers to 90 percent of its prior peak price after its maximum drawdown, and about 54 percent of stocks never return to par, based on price changes rather than total returns.
  3. The average recovery, at nearly 340 percent of par, far exceeds the median recovery because of skewness in the data, indicating that some stocks produced very high returns off the bottom.

Related Articles:

  • Which U.S. Stocks Generated the Highest Long-Term Returns? — Of the 29,078 U.S. common stocks in a database spanning nearly a century, 51.6% had negative cumulative returns, while 17 stocks returned more than 5m% — led by Altria at 265m%. Those top performers averaged annualized returns of just 13.47%, underscoring the value of time invested.
  • Do Stocks Outperform Treasury Bills? — Five firms—Exxon Mobil, Apple, Microsoft, General Electric, and IBM—accounted for 10% of total US stock market wealth creation from 1926 to 2016, and just 4% of firms generated all net stock market gains. Most listed firms had lifetime buy-and-hold returns below those of one-month Treasury bills.
  • Long-Term Shareholder Returns: Evidence From 64,000 Global Stocks — A study of about 64,000 global stocks estimates net global stock market wealth creation of $75.7tn, with returns highly concentrated: the top 159 firms (0.25%) account for half of net wealth creation and the top 1,526 (2.39%) account for all of it. Fewer than half of stocks beat one-month US Treasury bills, 42.6% of non-US and 44.8% of US stocks.
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