Stocks that don't fare well in a post-crash environment

Stocks that tend to be sub-par performers in a post-crash environment are:

1. OTC issues
2. Low-priced stocks
3. Small total-capitalization issues
4. Thinly-traded, under- or non-covered stocks
5. Industry laggards
6. Recession-sensitive by industry
7. Discredited groups
8. Panic-trigger related groups

Because of fear, nervousness and lack of speculative appetite after a crash or panic, the first five groups (some of which overlap) lack sponsorship.  

In addition, because market panics generate immediate scare headlines in the media, there is talk of recession and parallels drawn with 1929.  So recession-sensitive stocks by industry do not bounce back much for a period of time.

There may, in fact, be no recession following the market's downmove (as in 1988), but perception and expectation drive prices near-term more than facts do.  So cyclicals like steels, chemicals, paper and capital-good producers are not solid choices for participating in the bounce.  Similarly, vacation and luxury stocks fare poorly.

The discredited groups vary from one market period to another.  Their identity depends on what was in the headlines in recent months.

• Basic industry stocks were taboo in the early 1980s, known as the 'rust-belt' period.  
• High-tech stocks suffered through a private, one-industry recession in the mid-1980s.  
• Banks were whipping boys in the early era of bad third-world loans.  
• Most recently, savings and loans have been in the doghouse due to bailout legislation and highly visible failures and scandals.

Again in a longer-term perspective, the facts may prove that the fear about leading companies in discredited groups was unfounded.  But in the short term after a crash there are few who have the courage to sponsor tarnished-image stocks with either money or written advice.  Such issues are early recovery laggards.

The final category should be off the hold list for similar reasons.  Sometimes there is an industry or category of stocks related to the news that triggers the panic selling.  

• In 1962, it was steel stocks sensitive to pricing confrontation with the Kennedy administration.  
• Brokerage stocks would have been poor choices to hold after the 1987 crash because of all the controversy surrounding program trading.  
• The 1989 crash was triggered by the collapse of the propose buyout of UAL, Inc., so airlines and other proposed leveraged buyout candidates were identifiable as the trigger-related group at that time.