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In what percent of instances where a NYSE-stock falls by 30% or more in less than 3 months, does...?

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In what percent of instances where a NYSE-stock falls by 30% or more in less than 3 months, does...?

Postby wendel3 » Thu May 02, 2013 7:29 pm

1) In what percent of instances where a NYSE-stock falls by 30% or more in less than 3 months, does the stock price fully recover at some point within the following year (or less)? ... Is the answer closer to 1%, 10%, 40% ? ?

2) And at the other extreme.... In what percent of instances where a NYSE stocks falls by 30% or more in less than 3 months, does the stock price *never* fully recover [at least, up to the date of the analysis]? ... Is the answer closer to 1%, 10%, 40% ? ?

[Of course my numbers here are arbitrary, and other parameter-sets such as
... (20% / 1 mo / 6 mo) ... (40% / 6 mo / 2 yr) ... (50% / 1 yr / 4 yr) ...etc.
...could be used.]

I am trying to get a basic quantitative feel for how "resilient" stock prices are, in the face of what might be called "company dysfunction", "market misfortune", and /or "investor abandonment".

I pose this question in the context of the subject of Contrarian Investing, and in the context of the argument that widespread, unfavorable publicity can potentially "hammer" the stock price down to a level below its "fair value", making it a "bargain" to the astute investor. And then: How to best identify the most undervalued stocks that are most likely to "bounce back"?

thanks for your answers
wendel3
 
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Joined: Mon Jun 25, 2012 9:18 am

In what percent of instances where a NYSE-stock falls by 30% or more in less than 3 months, does...?

Postby andrei » Thu May 02, 2013 7:36 pm

There is no relationship between the old price of a stock and its future performance. Those who think there is believe in some kind of equilibrium theory, that over time, prices will return to their norm, which for convenience is often taken as last week's, last month's or last year's price. A stock which has dropped 50% is just as likely to rise 100% as a stock which didn't move, or one which already rose 50%. If it were otherwise, it would be possible to create a rule based system, and become infinitely rich. Ignore the old prices, ignore the chart. All they tell you is what people thought it was worth yesterday. Bottom fishers are useful because they can provide liquidity for those who want to exit if they see better opportunities in a stock which just doubled.
andrei
 
Posts: 151
Joined: Mon Jun 25, 2012 4:48 pm


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