One year ago, the market looked downright bleak. Fannie Mae (NYSE:FNM) and Freddie Mac went into conservatorship, Lehman Brothers was wrapped up in the arms of bankruptcy protection, and AIG (NYSE:AIG) was saved from the same fate only by government intervention.

But it wasn't just individual companies. The fundamental picture of the economy was deteriorating rapidly. Housing prices fell like Wile E. Coyote stepping off a cliff, banks started admitting that their balance sheets stunk like landfills, and consumers succumbed to the mountains of debt they had stacked up when credit was fast and easy.

You know the story … For investors, it was like being air dropped into a minefield. Because of this chaos, many stocks were unfairly punished. But which was the most unfairly punished? Let's find out.

Beware of exploding stocks
It's not hard to find stocks that were choked into submission by the falling market. Between Sept. 15, 2008, (the date of Lehman's bankruptcy) and the March 9, 2009, bottom, the S&P 500 index lost 43% of its value. But there were plenty of individual stocks that took a much bloodier beating. Here are just a few:


Market Cap
on Sept. 15, 2008

Price Change

Las Vegas Sands

$12.6 billion


Ambac Financial

$1.8 billion



$12.8 billion


Citigroup (NYSE:C)

$82.9 billion


ING Group

$57.6 billion


Bank of America (NYSE:BAC)

$121.1 billion


U.S. Steel

$11.4 billion


Source: Capital IQ, a division of Standard and Poor's.
Price change calculated between 9/15/08 and 3/9/09.

But in many of these cases, the companies were on the brink of extinction. Punished? Certainly. Unfairly punished? Probably not.

Babies, bathwater, and incredible returns
Panic is a fickle beast and it often leads investors to do silly things like sell stocks that really should be bought. Savvy investors didn't even need to wait for the March bottom. Those who were buying at the beginning of this year -- smack in the middle of the selling frenzy -- may well be sitting on doubles or better today. Here are just a few examples of hundreds that I found:


Price Change

Genworth Financial




Ford (NYSE:F)




Goldman Sachs




Starbucks (NASDAQ:SBUX)


Source: Capital IQ, a division of Standard and Poor's.
Price change calculated between 1/1/09 and 9/29/09.

The lesson here? Once again we see that temperament is a prized possession in an investor's toolbox. Those folks who had steely constitutions during the massive sell-off could have easily found ways to fill their portfolio with beaten-down stocks ready for a massive rally.

But the most unfair?
Obviously there were many stocks that traded down way too low and have since become huge gainers for investors who stepped in at the right time. But an upward price movement alone doesn't mean a stock was unfairly punished.

For example, the likes of Citigroup, Bank of America, and even Goldman Sachs just don't count as unfairly punished. Sure they were beaten up badly and have recovered significantly, but were they beaten up unfairly? I don't think so. What would have happened to these financial slicer and dicers if Uncle Sam hadn't stepped in?

Moving on ...

However, my pick for the most unfairly punished stock does come from the realm of finance. If you're a fan of fallen angel Bill Miller, then you're definitely familiar with Legg Mason (NYSE:LM). The company is a massive fund manager that has been in existence since 1899 and, at the end of March, had more than $600 billion under management.

Between October 2007 and the market bottom, Legg Mason's stock fell 87%, putting its price-to-book valuation at a mere 0.3. It seemed clear that investors were betting that there was a good chance that the company would be blinked out of existence entirely. But even though Legg Mason's business saw some particularly dark days, it had a balance sheet that hardly threatened total collapse. Investors did end up realizing their mistake and Legg Mason's stock has more than tripled from its low point.

Now let me be clear, with hundreds of stocks losing more than half their value between late 2007 and this year's bottom, it's pretty much impossible to choose a single issue that got the rawest deal from Mr. Market. So I'm sure that there are plenty of opinions out there on which stock should be deemed "the most unfairly punished."

Scroll down to the comments section below and share your thoughts.

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Fool contributor Matt Koppenheffer does not own shares of any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool. The Fool's disclosure policy has never once been caught with its pants down. Of course, it doesn't actually wear pants ...