In a 2025 study, Michael Mauboussin shared two case studies: Nvidia and Foot Locker. The former suggests pain may precede an extended period of abnormal shareholder returns; the latter indicates the pain may persist. Both stocks suffered drawdowns of 90%, but Nvidia ultimately became the best-performing S&P 500 stock in the 20 years ending in 2024, while Foot Locker was acquired at 30% of its peak price.
Nvidia: The Precursor to Triumph
Nvidia, a leader in the GPU and AI computing platform markets, generated a stunning 39% compounded annual return in the two decades ending in 2024. Its path, however, has been anything but smooth. From January to October 2002, Nvidia's stock plummeted 90%. This sharp decline occurred toward the end of the internet bubble. Over the same period, the PHLX Semiconductor Index fell 65%. This maximum drawdown exceeded the US stock median of 85% and was achieved in just 0.8 years, versus a sample median of 2.5 years.
Nvidia’s stock took 4.1 years—from October 2002 to November 2006—to recover from its trough back to its previous high. The median recovery time is 2.5 years. Nvidia's stock fell faster and recovered slower than the median S&P 500 stock. While its shareholders ultimately achieved significant long-term returns, the psychological toll of enduring a 90% drawdown is immense. As Charlie Munger suggested, remaining calm through such a decline isn't easy.
Foot Locker: The Persistent Pain
Foot Locker is a well-known American brand with a complex history. Woolworth, a five-and-dime retailer, acquired Kinney Shoe (which included Foot Locker) in 1963. Woolworth’s core business had been in decline for decades before it closed its last store in 1997 and was later renamed Foot Locker in 2001.
Due to retail business decline, Foot Locker’s maximum drawdown from 1990 to 1999 reached 91%. Unlike the rapid drop of Nvidia, this was a more protracted decline, taking 8.6 years from peak to trough. Foot Locker’s recovery time was even longer, taking 13.6 years until 2012 to return to parity.
Comparing the Context
The case studies highlight the importance of contextual factors. Nvidia and Foot Locker experienced almost identical stock price collapses, but their subsequent fates diverged significantly. Nvidia completed its peak-to-trough-to-recovery cycle in less than 5 years, whereas Foot Locker took over 22 years. This difference profoundly reveals their contrasting trajectories, partially comparing whether a stock's decline is caused by cyclical versus long-term structural factors.
