Over the last 150 years, the stock market has witnessed crashes approximately every ten years. From the 1929 Great Depression to the 2020 COVID-19 crash, these significant declines have consistently disturbed investor confidence. Studying these occurrences uncovers trends that can inform current trading choices.
The Market Always Recovers
Research shows that despite varying severity and duration, markets have consistently recovered and reached new highs after every crash. A hundred dollars invested in 1870 would be worth over three million dollars today, even accounting for every crash, recession, and crisis along the way.
The 1929 crash remains the worst on record, with an 89% decline that took 23 years to fully recover. By contrast, the 1987 Black Monday crash dropped 35% but recovered in just two years. The COVID-19 crash proved even faster, with markets returning to January levels by November 2020.
Timing the Market is Nearly Impossible
No one has successfully predicted market crashes consistently. In January 1973, eight market experts told the New York Times that markets would move higher. The Dow then proceeded to decline 45% over 23 months, only to surge 38% the following year without warning.
This unpredictability makes market timing extremely difficult. Getting out requires near-perfect timing twiceselling before the crash and buying back before the recovery. Most investors who panic sell near the bottom miss the subsequent rally entirely.
At Shelbit, we help traders understand that staying invested through volatility typically produces better results than attempting to time entries and exits.
Common Patterns Emerge Across Crashes
Historical analysis reveals that most crashes share similar characteristics. Assets typically run too hot before crashing, with investor overconfidence quickly transforming into panic. Early warning signs are frequently ignored as euphoria takes hold.
Excessive leverage amplifies losses during downturns. The 1929 crash was partly caused by widespread margin buying, while the 2008 financial crisis stemmed from overleveraged housing positions. When confidence evaporates, leveraged positions force selling that accelerates declines.
Computer-driven trading can magnify volatility. Black Monday in 1987 was partially triggered by automated stop-loss orders that created cascading sell-offs. The 2010 flash crash demonstrated how a single trader using algorithms could temporarily wipe a trillion dollars from markets.
Diversification Provides Protection
Well-diversified portfolios aligned with time horizons and risk tolerance weather crashes better than concentrated positions. Strategic cash reserves prevent forced selling at losses during downturns. Spreading exposure across different asset classes and sectors reduces vulnerability to any single crash driver.
For traders using cryptocurrency platforms like Shelbit, the same principles apply. Diversifying across multiple digital assets rather than concentrating in one reduces portfolio volatility during crypto-specific crashes.
Fear Creates Opportunity
The most extreme fear readings often precede market bounces. Contrarian investors who maintain discipline and buy during periods of peak pessimism frequently profit as sentiment normalizes. However, this requires emotional control and sufficient liquidity to act when others panic.
The key lesson across 150 years of market history is straightforward: markets crash regularly, but staying invested through downturns has consistently rewarded patient investors. While volatility feels uncomfortable in the moment, it’s the price of admission for long-term returns.
Preparing for crashes means building resilient portfolios through platforms like Shelbit that balance growth potential with risk management. Understanding history doesn’t prevent future crashes, but it provides perspective to navigate them successfully.
