It's been a bad month for stocks — capping off what has been a potentially devastating year for investors picking the wrong stocks.
Investors with the impossibly bad luck of buying the worst stock in the each month this year — including the disappointing month of August — would have suffered a brutal cumulative loss of 91%. That string of losses would have turned an initial investment of $10,000 into just $857 in eight months.
Compare that with investors who simply bought the S&P 500, for whom the year-to-date loss would be just 4.2%. Not great, but hardly a crisis.
To be clear, the odds of an investor buying the absolute worst stock each and every month this year would be extremely small. Still, these aren't exactly tiny and speculative stocks — all are stocks listed on the S&P 500. This analysis underscores that even investors who aren't necessarily timing the market — but picking individual stocks — are in some ways speculators, too.
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Understanding and respecting the vicious wealth-destroying power of the market is getting more important as stocks struggle under the weight of new fears. Concerns about economic growth in China and valuations of U.S. stocks caused markets to have a rough August. The S&P 500 lost 6.3% of its value.
But that monthly decline masks what was a pretty ugly market for investors who picked the wrong individual stocks.
The worst stock in the S&P 500 during the rough month was Mallinckrodt, a pharmaceutical company. Shares dropped 30.4% during the month — pushing the stock down 13% this year so far. It's the stock's third monthly loss this year of 9% or more.
Following Mallinckrodt in the hardest-hit club in the cruel month of August was media company Viacom. Shares lost 29% of their value during the month and are now down 46% this year. The media company is expected to post just 1.1% adjusted earnings growth this year.
And talk about being in the wrong place at the wrong time. Wynn Resorts has focused on building out gambling facilities in Asia. With the Chinese economy slowing, the stock has been hammered. Shares dropped 27% just in August and are down nearly 50% this year.
Yes, it's been a cruel month for stocks. But it's been a downright vicious month and year for stock pickers — in the wrong places.