Extreme Stock Market Performers, Part I: Expect Some Drawdowns

Abstract

Even those long-term shareholders who were rewarded with the greatest cumulative returns endured large price declines over shorter intervals. I study shareholder wealth creation for all publicly-listed U.S. common stocks during each of the seven decades since 1950. Focusing on the 100 most successful stock/decades in terms of shareholder wealth creation, I document even within the highly successful decade, shareholders experienced draw-downs that lasted an average of 10 months and involved an average loss of 32.5%. During the immediately preceding decade, draw-downs for these highly successful stocks lasted an average of 22 months and involved an average cumulative loss of 51.6%.