The Down 80 Percent Club

The world has turned upside down, or right side up, depending on your perspective. Everything that worked during the pandemic is unraveling on the other side of it.

Nose bleed valuations are getting knee clubbed by a combination of high inflation and rising interest rates. These darlings of 2020 are down 80% or more from their all-time high.

It’s tempting to try and catch a bottom in exciting names that are down so much. But the chart above should be illustrative of the dangers in trying to do that.

“Teladoc is down 91%. How much worse can it get?” You might look at Peloton or Stitch Fix which are down 96% and think the gap between -91 and -96 is not that wide. You would be wrong. David Einhorn once said “What do you call a stock that’s down 90%? A stock that was down 80% and then got cut in half.” For a stock to go from down 91% to down 96% it would have to fall another 55%!!!

It’s unwise to average down into crashing growth stocks. If you’re going to play that game, it’s best to have an exit strategy. Averaging down into declining indexes tends to have a better outcome, but it can still be a painful process. There’s nothing worse than thinking a bear market is over only to have the rug pulled out from underneath your legs.

Look how many times that happened during the bursting of the dotcom bubble. Three separate ~20% rallies that would go on to make new lows. Just when you thought the worst was behind you, you got blindsided by more selling.

We just experienced an unpleasant version of this in the S&P 500 over the summer. Stocks bounced 17% from the bottom and retraced more than 50% of the losses. We know what happened next.

So, what would we need for stocks to find a bottom that sticks? We spoke about this with one of the top technicians in finance, Katie Stockton. We covered her process, market internals, and her new ETF TACK. Hope you enjoy and have a nice weekend.

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

The Compound Media, Inc., an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here:

Please see disclosures here.