ThatStockGuy

Accumulation: At first, the vultures’ buying of the wretched is slow, smelly and stealthy. If detected by more-aggressive market players, it’s ridiculed as stupid and hopeless. It shows up as a saw-toothed flat line on a chart that once only tilted down. This is the quartile of the stock life cycle known as “accumulation,” and it can persist for months or years.

Mark-up: As the deep-value guys patiently build bigger stakes of 5% to 10% or more, their peers begin to take notice, and the arrival of tag-along value buyers generates modestly levitating prices. At some point, if the value guys are right, business fundamentals under new management start to get traction, growth-at-a-reasonable-price buyers move in, and prices start to move up at a modest angle. This is the “mark-up” phase.

Distribution: Then stocks with the best recovery stories — usually with a raft of new products and executives who know how to play the public relations game — attract earnings- and price-momentum players who push prices up at a much steeper angle. Eventually, the value funds begin to take their early-bird reward and feed the stock out to late-comers, usually the public, in a period known as “distribution.”

Markdown: At this point, the stock is still at highs amid an era of good vibes and high-fives. Online message boards are alit, and fund managers chirp about unending growth prospects. Yet the stock is oddly losing upward momentum. The price hits a new high, falls back, then hits the same high only to fall back again. And then it makes one last lunge up — which fails. After this double- or triple-top, the stock collapses into the last quartile of the cycle, called “markdown.” This is the swiftest and ugliest phase, when shares — bereft of any deep-pocket sponsors — cascade down in a few brutal days, then sink gently but steadily for weeks or months more, leaving the public wondering what the heck happened.

Example chart from 2003