If you’re like me, you’re probably watching your stock market portfolio drop like there is no bottom in site. Just when you get a small rally and think things are better, it drops again in a big way. You’re losing money fast. But don’t fret. You should instead be viewing any drop in the market as a gift, especially if you have a long investing horizon in front of you.
What do I mean by that? How can I say that when you’re watching the value of your hard-earned dollars evaporate away each and every day? Well, for that you must look at the history of the stock market, those trading accounts, and the results of those who sold everything compared to those who kept adding to their position.
The History
1929 Crash
The most notable stock market drop was in 1929. It contributed to the Great Depression we’ve all heard about. Yes, this was a devastating drop that wiped out billions of dollars and shook the country. By July of 1932 the Dow was down over 89% from its all-time high.
Yet during this time, after a considerable drop in October of 1929, after a significant 30% drop, it had sharp rallies upwards for several weeks. As the U.S. slumped into the Great Depression prices did continue to fall and didn’t recover for many years afterwards. So, it was certainly a roller-coaster ride, but the market did eventually make new gains.
1987 Crash
Back in the 80s, there was a day called Black Monday. Global stock markets crashed resulting in the largest one-day stock market decline in history, crashing 22.6% in a day. It would have been tempting to view this as a larger, more significant decline. I’m sure people were remembering the 1929 crash. I would guess some people decided to sell during this time.
However, the stock market recovered most of the Black Monday losses in just two trading sessions. Within two days, 57% of those losses were gained back. And less than 2 years later, the market surpassed it’s all-time high.
Tech Stock Crash in 2000
Remember this time in history? I sure do. New internet stocks were the rage. People were making money like crazy. It almost didn’t matter what you invested in, you were making money, especially in tech and internet stocks.
But then came the crash. The Nasdaq lost over 39% of its value. Many of the tech startups that had raised money and went public just collapsed when the money ran out.
However, by 2002 the market started bouncing back.
Financial Crisis 2008
This one most of you probably really remember because it most likely hit your pocket directly and significantly. It was probably the most serious financial crisis since the Great Depression. Its nickname is the Great Recession.
During this time, the housing bubble happened. Banks were filing for bankruptcy.
Other companies were being supported by the government. It was a horrific time in the market when everyone thought the financial markets would never recover. And it went on for months and months.
And although it was a long eventual recovery, the market is significantly higher today than it was then.
The Opportunity Today
Market downturns are almost always followed by recoveries. At least with the U.S. Stock Market. And although many people talk that “this time it’s different” and believe that their portfolio will never recover, for those who are patient, they have not only recovered those losses, but have made money in the meantime.
For those who have continued investing during those times, they are now being handsomely rewarded for their diligence.
Warren Buffet, one of the world’s greatest investors has been known to say, “the stock market is a device to transfer money from the impatient to the patient.”
And if you look at the above crashes, these were all great buying opportunities. Now, this isn’t a golden rule where it transpires each instance. For example, in the late 1980s the Nikkei 225 in Japan had reached an all-time high. It’s crash didn’t end until 2009 and has still not reached its high mark.
But for the most part, patient investors have done very well by buying in the market corrections and bear markets. As another investor has said, “you make the most of your money in a bear market, you just don’t realize it at the time.”
Are Things on Sale Now?
As of this writing in 2022, the stock market has recently plunged more than 20%. There is talk of a recession. Will the market recover quickly to all-time highs like it did in 2020? Or will there be more suffering and the market drops another 10 – 30%?
No one really knows. What is probable, however, is that if you don’t sell in these market downturns and continue to dollar cost average in, you’re most likely buying while things are on sale.
And we all like things on sale, right? If we see a favorite item at the store at a 25% discount, we can’t believe our luck. Most of us just don’t see the stock market the same way. If we did, we might just see that any drop in the stock market is a gift.
We just have to participate.
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