Most Stocks Suck

You Really Need to See this Data

Author

Michael Batnick
May 29, 2025

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One of the most impactful papers I have ever read is JPMorgan’s The Agony & the Ecstacy. This line is permanently seared into my brain:

More than 40% of all companies that were ever in the Russell 3000 Index experienced a “catastrophic stock price loss”, which we define as a 70% decline in price from peak levels which is not recovered.

There’s a new paper out from Michael Mauboussin and Dan Callahan that expands upon one of my favorite topics; the difficulties of stock picking. If you are someone who likes to dabble in the dark magic, like I do*, do yourself a favor and read Drawdowns and Recoveries, Base Rates for Bottoms and Bounces..

Most stocks suck. We know from Hendrik Bessembinder’s famous study that only 40% of stocks beat treasury bills. The remaining 40% destroyed $10.1 trillion in value through the end of 2024. If you’re going to buy individual stocks, be right, have conviction, and don’t be wrong.

If you buy and hold a stock, at some point you are going to get your teeth kicked through the back of your head. 93% of the stocks Mauboussin and Callahan analyzed got cut in half! They show that the average maximum drawdown is 80%, or in more tangible terms, that would be a $10,000 investment falling to $2,000. And mind you, 40% of them never fully recover.

“Okay but what about the best stocks?” I’m glad you asked. Those also get crushed, with an average max drawdown of 72%.

Ben and I discussed this paper's findings on this week’s Animal Spirits. But we left plenty of meat on the bone, and are going to return to this topic next time. Hope everyone has a great day.

*I am under no illusion or delusion that the stocks I pick will outperform the index over time. I do it because I enjoy it, and because it provides rich content for my podcasts. If I didn’t need material for the show, I probably wouldn’t do it. Maybe I would, but I doubt it. I am a big fan and consumer of index funds.