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After the stock-market crash of 1973-1974, Ray combed through the wreckage and culled out a selected number of institutionally known names of companies that had just about disappeared from the investment scene. In calculating the average loss of the stocks on this list, Ray discovered that the average price decline was a whopping 99.2%. These stocks were no pikers, but companies that institutions regularly bought for their portfolios in the bull market of the early '70s. If I recall correctly, such banner names as University Computing and American Medicare played leading roles back then. Ray identified this unusual portfolio of all-time losers as the "Clinker Index." This was an appropriate name inasmuch as modern portfolio theory was just coming in vogue, as were the so-called unbeatable index funds. While perusing the latest carnage on Wall Street I thought an update of Ray's Clinker Index would be an interesting exercise. I found some difficulty in tracking down prices for some companies that declared bankruptcy. So, in those instances where current prices were not available, I assigned the price of zero. I also cut the list off at 25 companies, and excluded many businesses that have no data at all (such as Webvan and Etoy). Here's the Clinker List II, with the individual stock-price declines from the five-year highs.
There is a broad representation of industries here, although the obvious big losers, given the bursting of the tech bubble, include tech and telecommunications stocks. What I found remarkable was that the average price decline of these securities was 99.3%, equivalent to the first Clinker Index. An interesting derivative analysis might be the loss in market value of the companies on this list, but I'll leave that study for another time. Incidentally, the average stock price of the 21 survivors on this list is now $0.80 per share. For all you bottom-fishing speculators, this list is the equivalent of a 99 cents store. One lesson to be learned from this exercise is that investors should monitor the changing price and the fundamentals of individual stocks that they own. They should also be willing to sell stocks — even if there is a tax liability — rather than holding on and hoping they will "come back." Given the fact that billions of dollars were lost on this hypothetical portfolio of diversified stocks, one could have reduced losses by sticking to a reasonably conservative sell discipline (e.g., an absolute drop-dead sell price) for each security. Another scary characteristic of this list is that many companies with both institutional name recognition and substantial borrowings are selling for less than "hat size." This is another old Wall Street term that refers to the inevitable destiny of a company once it falls in price below, let's say, 6.25 — the equivalent of a large hat size. Ray Devoe is still active in the investment business. He writes an institutional letter for Legg Mason Wood Walker, another well-respected brokerage and investment firm. All of us old timers would like to thank him for being one of the special people in this business. P.S. I'm not going to update Ray's COLI (Cost of Loving Index). — Tom Nugent is executive vice president and chief investment officer of PlanMember Financial Corp. While he may have previously owned some of the stocks mentioned in this article, he no longer owns any of them nor does he intend to purchase any of them in the near future. This article should not be misconstrued as any type of recommendation for investment decisions. |
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of the great stock-market observers of the 20th century was Raymond DeVoe.
During the 1970s, Ray brought a "ray" of humor into the investment
business through his weekly market commentaries published by the well-respected
investment firm of Spencer Trask. The old timers will remember Ray's "cost-of-loving"
index, a little spoof on the consumer price index. Periodically Ray would
update the rising prices for items in this index (e.g., movie tickets,
lipstick, and other controversial love-related items) to demonstrate the
rise in prices that affects real people.
