FREE NEWSLETTER
THE ECONOMY IS recovering and the stock market has recovered. The pandemic isn’t over, but it seems we’re past the worst, at least in the U.S. Feeling better? Take a deep breath, take a step back—and think about the past two decades.
Since early 2000, we’ve had three major stock market declines, or roughly one every decade:
Why do I recount this disturbing history? Each time, experts and everyday investors cried, “It’s different this time.” Yes, each of these three crises were indeed different. If they had been carbon copies of earlier market panics, investors would have spotted the similarities and responded far more calmly.
“History doesn’t repeat, but it rhymes,” or so goes the saying, which—it seems—wasn’t said by Mark Twain. When the stock market next plunges, it won’t be the same as 2000-02, or 2007-09, or early 2020. But it’ll have similarities: the panicked investors, the widespread fear that the decline will only get worse, the declarations that this market crash is somehow different from all earlier market crashes, and that stocks won’t recover any time soon. Which, needless to say, is about the time when stocks do indeed defy the naysayers and head higher.
To survive a stock market crash, you don’t need a brilliant investment mind. Instead, all that’s required are tenacity, an awareness of market history and enough cash to cover upcoming expenses, so you aren’t forced to sell stocks at the worst possible time.
As I’ve mentioned before, the stock market represents an asymmetrical bet. If all goes well, stocks will fare just fine over the long run. What if economic apocalypse finally arrives? It won’t matter what investments you own. If the globe is reduced to an economic wasteland, nobody’s going to swap their canned goods for your gold bullion, and they certainly won’t barter food for your cryptocurrency or nonfungible tokens.
But I also believe there’s scant chance we’ll ever see that sort of worldwide economic meltdown. Think about the remarkable response to the pandemic—how rapidly governments responded, how quickly businesses adapted, how fast we developed vaccines. This astonishing ability to change and innovate, with an eye to making sure tomorrow is better than today, is what keeps the economy growing—and it’s why we shouldn’t assume the next crisis will be anything more than a painful, but relatively brief, moment in time.
Jonathan Clements is the founder and editor of HumbleDollar. Follow him on Twitter @ClementsMoney and on Facebook, and check out his earlier articles.
Want to receive our weekly newsletter? Sign up now. How about our daily alert about the site's latest posts? Join the list.
Actually, of all of these events, only 2008 really scared me. CDO’s and the like were having a domino effect, blasting holes in the balance sheets of hundreds of companies and even sovereign wealth funds. I was very worried about the economy essentially freezing up. I think the Fed did far more than we’ll ever know to manage that effectively… in addition to their critical market clearing function.
I’m not trying to shrug off the other events, but for me they weren’t frightening.
Thank you for the important reminders! What concerns me is that all this is based upon a foundation of laws (and their enforcement) based upon the ‘sanctity of Private Property Rights‘ (an observation of Ken Fisher). I wonder if those basic rights (laws) are now under assault?
Mr. Clements, your optimism in terms of a total/global collapse is admirable.
In contrast, the way our household has looked at this current pandemic, we consider it a near-miracle that we never lost food, utilities, nor Internet. (Well, not true: here in Texas, we had it pretty rough in these regards in early February—but even then, only for about a week.)
I’m continually amazed, now over the course of some thirty-or-forty-odd years, how you keep coming up with engaging financial thoughts to share, on such a regular basis.
Regards,
(($; -)}™
Gozo