It can take a long time for stocks to regain lost ground after they "gap" down, in Wall Street parlance, as Merck & Co. shares did yesterday, falling 26.78 percent.
Birinyi Associates Inc. went back to 2000 and analyzed 18 other stocks whose prices fell by more than 25 percent in one day. Six months after their plunge, only 55 percent of them had gained in price. It took Costco Wholesale Corp. 762 days to recover after gapping down 28.62 percent in May 2000. As of July 30, Computerware Corp. was trading down 75 percent from its gap on April 12, 2000.
There is hope, though. Birinyi also went back to 1980 and studied stocks with one-day drops of more than 20 percent. One year after their gaps, the median performance of those stocks was a gain of 9.17 percent.