Camille Van Vyve
31 Jul 2025
Make the most of market cycles without losing sleep
Market downturns are often seen as periods to avoid. Yet these “drawdowns” are an integral part of business—and investing—and shouldn’t trigger rash decisions. In this article, inspired by an excellent newsletter from Market Sentiment, we explore these correction phases, both for individual companies and the market as a whole.
Declines are a normal part of the market
Stock market declines are as natural as they are inevitable, even for top-performing companies. These periods can be emotionally taxing for investors, as they trigger our cognitive and emotional biases. Risk aversion often leads us to overreact, while recency bias makes us believe the current situation will last forever.
Netflix: a textbook case of decline and recovery
Netflix perfectly illustrates this dynamic. Between November 2021 and May 2022, the streaming giant's stock plummeted nearly 75%, dropping from around $700 to under $180. The reasons? The loss of 700,000 Russian accounts following the company’s exit from Russia, and the post-Covid reopening that pulled people away from screens. For many investors, this plunge marked the end of Netflix’s golden age.
Yet those who held firm—or even increased their position—were handsomely rewarded. By April 2024, Netflix was trading again above $600, nearly recovering its entire loss. This isn’t an anomaly, but rather a recurring pattern in the stock market.
The Magnificent 7 and their volatile journeys
Even the tech giants dominating today's markets have gone through severe volatility. Since 2020, all members of the "Magnificent 7"—Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, and Tesla—have experienced sharp drawdowns… followed by spectacular rebounds in 2025:
- Meta (Facebook): -77% between Sept 2021 and Nov 2022
- Tesla: -73% between Nov 2021 and Jan 2023
- Amazon: -55% between Nov 2021 and Dec 2022
- Alphabet (Google): -44% between Nov 2021 and Nov 2022
- Apple: -33% between Jan and June 2022
- Microsoft: -38% between Nov 2021 and Nov 2022
- Nvidia: -69% between Nov 2021 and Oct 2022
These examples prove that even the strongest companies go through major corrections—often for subjective or temporary reasons. What sets successful investors apart is how they respond during these times.
A risky experiment: investing in beaten-down stocks
The Market Sentiment newsletter recently conducted a fascinating experiment to test an investment strategy focused on declining companies. They simulated three portfolios from 2020 to 2025:
- “50% decline” portfolio: Invest $100 in any company that drops more than 50% from its all-time high and hold.
- “75% decline” portfolio: Same strategy, but for stocks down 75% or more.
- “90% decline” portfolio: Same again, for stocks that have collapsed by at least 90%.
Interesting results, but…
With a 50% threshold, the portfolio ended up including over half the S&P 500—delivering roughly the same return as the index itself. But as the drop threshold deepened, results became more striking. An investor who had put $3,600 into 36 stocks that lost over 90% of their value would have earned a total return of +236%. The same amount invested in the S&P 500 at the same times would have returned just +86%.
Extreme volatility
That outperformance came with brutal volatility. The “90% decline” portfolio saw drops of up to 60%, testing even the most disciplined investors. While some companies in the group made impressive comebacks, others vanished entirely or lost almost all their value. Plus, there’s no guarantee these results would repeat in a different timeframe—timing plays a huge role here.
The paradox of risk and rebound
This aligns with a Morgan Stanley study that revealed a striking paradox: the deeper a stock declines, the less likely it is to rebound. Yet among those that do recover, the rebound tends to be proportionate to the severity of the fall. In short, the stocks with the deepest crashes have the lowest survival rate—but the highest potential rewards. It’s a textbook case of the risk-return trade-off.
ETFs: a smart way to balance risk and return
When it comes to individual stocks, betting on beaten-down names is a high-risk strategy that requires relentless market tracking. As we often say, global ETF investing is a much more rational approach:
- Simplicity and efficiency: Global index investing delivers market returns—around 7% annually over the long term (+345% total over the past 15 years).
- Built-in diversification: By investing in the entire market, you automatically benefit from the rebounds of declining companies, in proportion to their index weight, without needing to pick winners.
- Peace of mind: This approach eliminates the stress of picking individual stocks and protects you from specific business failures.
- Crisis resilience: History shows that despite repeated crises, markets eventually recover and reach new highs over time.
How to fine-tune this strategy?
To get the most out of index investing, a few simple principles apply:
- Invest regularly: Contribute to your portfolio at regular intervals to benefit from dollar-cost averaging.
- Lean in during downturns: Without trying to time the market perfectly, slightly increasing your contributions during broad market declines can boost long-term returns.
- Stay the course: Discipline is key. Resist the urge to sell during turbulent times and stay focused on your long-term goals.
Ride market cycles with Easyvest
Boom-bust cycles are part of how markets function—even for the best-performing companies. Global index investing offers a balanced way to benefit from market rebounds while minimizing individual risk. Combined with a disciplined approach, this strategy likely offers the best balance between potential return and peace of mind. With Easyvest, it’s easy and low-cost to adopt this strategy—and ride the market’s ups and downs without falling victim to them.