40% of Stocks Experience Catastrophic Losses, and the Best Performers Suffer -69% Drawdowns on Average

With the turmoil and recent deleveraging in the markets, I would like to offer research for concerned retail investors to look into. Plainly, if you are an investor without a defined goal and are concerned about the prices of your **individual** stock picks, you are likely investing for the wrong reasons. [Probabilities and Payoffs | The Practicalities and Psychology of Expected Value](https://www.morganstanley.com/im/publication/insights/articles/article_probabilitiesandpayoffs.pdf) *Morgan Stanley Counterpoint Global (2025)* What I want to highlight from this paper is that the authors analyzed the long-term price trajectories of the best-performing stocks in the S&P 500 over 20-year horizons and found the **average drawdown for the top-performing stocks was 69%**, with several experiencing declines of 75% to 90% (p. 21). NVIDIA experiences a max drawdown over 20 years of 85%; Apple 68%; Alphabet 67%. It is psychologically taxing to endure losses; we dislike losing far more than we do winning of consumerate amounts. To capture the long-term upside of a mega-winner, you have to survive drawdowns that can last for many, many years (which most likely will not hold through). [The Agony & the Ecstasy 3.0: An Update on Our Concentrated Stock Research for High Net Worth Families](https://assets.jpmprivatebank.com/content/dam/jpm-pb-aem/global/en/documents/eotm/agony-ecstasy-2021.pdf) *JP Morgan Asset Management (2021)* As demonstrated on page 3, **40% of all companies ever included in the Russell 3000 Index experienced an unrecoverable 70% decline in price from the peak level**. This includes 50% of all communication services, 65% of all energy, and 59% of information technology. The paper notes that over 40 years, only **\~10%** of stocks qualified as "mega-winners" (outperforming the market by 500%+). The rest either underperformed or suffered permanent capital impairment. [Do stocks outperform Treasury bills?](https://www.sciencedirect.com/science/article/abs/pii/S0304405X18301521?via%3Dihub) *Journal of Financial Economics (2018)* Across all U.S stocks from 1927-2016, 50% of all stocks had **negative** total returns. >The 1092 top-performing companies, slightly more than 4% of the total, account for all of the net wealth creation. That is, the remaining 96% of companies whose common stock has appeared in the CRSP data collectively generate lifetime dollar gains that matched gains on one-month Treasury bills. I strongly recommend reading these papers and caution anyone against making large bets on single companies. Broad-market, low-cost index funds and ETFs (VT, VTI, VXUS, or equivalent) capture every top winner automatically without nuking your wealth. [The S&P 500 has beaten 92% of large-cap domestic mutual funds over most of this century.](https://www.fool.com/investing/2025/01/19/you-can-outperform-nearly-92-of-professional-fund/)