This article originally appeared on TKer.co
About two decades ago, I started exploring stock market history and frequently stumbled upon surprising facts and statistics that I would never have guessed.
Two of these facts pertain to some of the most significant market crashes in history.
The first relates to Black Monday, which occurred on October 19, 1987. The Dow plunged by 508 points in a single trading day, representing an astonishing 22.6% drop at the time, while the S&P 500 fell by 20.4%.
Interestingly, despite this massive drop, the S&P 500 actually finished the year on a positive note.
That same year, the S&P faced a 33.5% decline from its peak on August 25 to its lowest point on December 4.
The surprising takeaway: By the end of 1987, the S&P recorded a 2% gain for the year, and the economy avoided slipping into recession.
The second surprising fact concerns the dot-com bubble. From the peak of the internet stock bubble on March 24, 2000, to its trough on October 9, 2002, the S&P 500 plummeted by an astonishing 49%.
During the lead-up to this period of inflated prices, then-Fed Chair Alan Greenspan infamously posed the question (with emphasis):
But how do we know when irrational exuberance has excessively inflated asset values, leading to unexpected and prolonged downturns as seen in Japan over the last decade?
In hindsight, many see that speech as a prophetic warning of the eventual bubble collapse.
The surprising takeaway: When Greenspan delivered that speech on December 5, 1996, the S&P was at 749. After the burst of the dot-com bubble, the index reached its lowest point in 2002 at 776, meaning the post-bubble low was actually above the level at which Greenspan spoke.*
We might be standing on the brink of a significant and prolonged market decline.
Conversely, it’s possible the market rallies further, making the bottom of the next downturn higher than our current position.
Investing in the stock market can often be a tough journey. Conservative approaches like buying and holding or dollar-cost averaging can already be challenging.
Engaging in market timing is an even more daunting prospect.
Reflecting on previous stock market crashes reminds us that trying to time the market often leads to costly mistakes, as stocks can be unpredictable in the short term.
Even when the market seems overvalued, the risk lies in possibly selling too low and then repurchasing at a high.
“The hard part about timing the market is you have to be right twice,” said Charles Schwab CEO Rick Wurster to Yahoo Finance. “You need to exit at the right moment, and then you have to re-enter at the right moment, which is incredibly difficult.”
