A key reason for the decline in the stock prices of a specific company or an entire market segment is often preceded by a significant surge.
During the pandemic, we witnessed extraordinary spikes in the valuations of certain companies. Many of them are now experiencing declines.
Wayfair has lost more than 23% after experiencing a tenfold increase since the end of March, while Zoom has fallen by 19% and DocuSign by 20%.
These companies could become some of the most successful in the coming decades; however, this does not rule out the possibility of significant stock downturns during certain periods.
This phenomenon has occurred with many of the largest companies. For instance, Apple has increased nearly 120,000% since the early 1980s, during which time its stock has suffered from three declines of more than 75%.
Facebook, after its IPO in 2012, saw a growth of 600%, during which it faced several downturns, including drops of 30% and even 53%.
Netflix has appreciated more than 43,000% since 2002, yet its stock has experienced drops of 50% or more on four occasions, including twice by 75%.
This indicates that, if companies currently showing rapid growth succeed in the long term, they are almost certain to encounter multiple significant stock declines along the way.
If one seeks to achieve substantial profits from stocks, it is essential to be prepared for such fluctuations.
