Jul

7

Does anyone know how much multiples contract during crashes, has there been any trend in those contractions, and do industries differ in any meaningful way in the degree of contraction?

Allen Gillespie writes: 

Normally, a crash is the fast repricing of a full recessionary effect and recessions typically are 16-21 month affairs, so a rough rule would be you wipe our 16-21 months of market activity with about a 33% contraction in earnings and 7% for the investment backers to raise capital, so 40%. If you really have a bubble, then you can wipe it out all the way back to balance sheet valuations of the prior recession, which might be a 10-12 year period, but that generally takes time and if you blow up the government too then 90% seems to be the rule.
 


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