Most Stocks Have Suffered Massive Losses — New Study Reveals the Harsh Reality of Long-Term Investing

A new study highlights a hard truth for investors: since the mid-1980s, the typical stock has plunged more than 80% from its peak at some point in its life.

Many investors imagine how different their portfolios would look if they had bought and held shares of iconic companies like Apple, Microsoft, or Nvidia from the beginning. But few realize how difficult that journey would have been. Holding through massive losses requires uncommon discipline.

According to a recent report by Michael Mauboussin and Dan Callahan of Morgan Stanley Investment Management, deep drawdowns are far more common than most people think. The duo analyzed the performance of over 6,500 publicly traded U.S. companies between 1985 and 2024.

“The findings are provocative and surprising,” they wrote.

Here’s what they found:

• The median stock fell 85% from its highest point at some time during the period.
• The average drawdown was slightly less, at 81%.
• Most companies never fully recovered — only 46% made it back to their prior highs.
• The median recovery for a stock was just 90% of its former peak.
• A few exceptional winners distorted the average: overall, stocks rose to 340% of prior highs — but that was driven by a small number of top performers.

This aligns with research by Hendrik Bessembinder of Arizona State University, who studied more than 28,000 U.S. stocks from 1926 to 2024. His findings: just 2% of all companies generated 90% of the $79.4 trillion in net stock market wealth.

Among them, six firms — Apple, Microsoft, Nvidia, Alphabet, Amazon, and ExxonMobil — contributed a combined $17.1 trillion in value. Yet even these giants experienced major setbacks. For example, Amazon’s stock dropped 95% between 1999 and 2001. On average, these six stocks had drawdowns of 80.3%, similar to the broader market sample.

While dramatic recoveries are possible, they’re rare. Among companies that lost more than 95% of their value, only 16% ever climbed back to their previous highs.

Still, for those that survived, the rebound could be powerful:

• The median return one year after a stock bottomed was nearly 300%.
• Annualized returns over the following decade exceeded 30%.
• However, these numbers exclude stocks that went to zero, and large gains are often needed just to recover heavy losses.

The takeaway? Diversification matters. Even strong individual stocks can go through long, painful periods. Broad indexes like the S&P 500 have also seen significant selloffs — notably after the dot-com bubble and the 2008 financial crisis — but tend to be more resilient due to their diversified nature.

The report opens with a quote from the late Charlie Munger, Warren Buffett’s longtime business partner, that puts things in perspective:

“If you’re not willing to react with equanimity to a market price decline of 50% two or three times a century, you’re not fit to be a common shareholder,” Munger said in 2009.

Munger, who passed away in 2023, believed enduring steep drawdowns was simply part of being a long-term investor. His advice still resonates: stay calm in the face of volatility — because often, the biggest gains come after the biggest drops.