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Stock market crashes

11th October 2021

With markets at all-time highs and chances of a market crash or correction increasing by the day, history can provide some vital guidance on the implications of hanging onto your stocks for too long:

The Wall Street Crash stemmed from Black Tuesday in 1929 and created the start of the ‘Great Depression’, stocks plummeted -80% from 1929 to 1932, and US unemployment rose to 25%. Low wages, prolific and widespread debt and struggling agriculture sectors globally triggered the crash, which then took 25 Years to recover all losses and return to pre-crash levels!

In October 1987, the world watched in awe as stock markets fell over -20% in just one day. It is believed the crash was caused by precipitated computer-program driven trading models. Investor panic is also a cause to blame for this significant loss. Now referred to as Black Monday, it took 5 Years for stocks to recover losses.

The 2000 Dotcom crash saw the internet bubble burst spectacularly. As the Nasdaq reached all-time highs, much like markets today, the Nasdaq crashed -20% in April 2000 and continued to -80% below its peak. How long did it take to recover the losses? 13 Years !!! Yes – the Nasdaq only reached 2000 levels again in 2015. The Dotcom bubble was caused by excessive speculation of Internet-related companies in the late 1990s – a period of enormous growth in using the ‘new’ internet.

We all remember the 2008 Financial Crisis, markets were crushed by the sub-prime debt implosion, and stocks crashed across the globe. The S&P500 lost -48% of its value between 2008 and 2009 and only recovered those losses in 2013, 4 Years after the bottom of the crash. The 2008 financial crash, also known as the Global Financial Crash, is considered by many economists to be the most severe economic crisis since the Great Depression – until now!

The next crash? 2021? 2022? Nobody knows when it will come, but the signs overwhelmingly point to a stock market that looks like a bubble that is ready to burst at any moment. More importantly, we know that every crash in history has been guided to recovery by central banks using the economic tools at their disposal. These tools are primarily reducing interest rates, making stimulus payments, asset purchases, and discount lending – the primary concern for the next crash is that all of these tools have already been deployed due to the Covid pandemic; leaving central banks and stock markets in a highly precarious position whereby they cannot deal with another market crash; this gives investors a solid reason to seek secure, stable assets in the short term.

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