Four crashes, and what they teach
Every long-term investor lives through crashes. Here are four of the biggest in recent decades, measured with the actual S&P 500 (SPY, month-end prices): how far it fell, how long the fall lasted, and how long it took to get back.
The dot-com bust (2000–2002)
In the late 1990s, excitement about the internet sent technology shares soaring. Companies with no profits were valued in the billions; the Nasdaq more than doubled in about 18 months.
From March 2000 the bubble burst. Many internet companies went bust, and even excellent businesses like Microsoft and Cisco fell a long way. The Nasdaq fell nearly 80% from peak to bottom.
Lesson: Great technology doesn't guarantee great investments when prices assume perfection. Valuation matters, and recovery can take years.
The global financial crisis (2007–2009)
Banks had lent heavily against US housing, often to borrowers who couldn't repay. When house prices fell, losses spread through the financial system. Lehman Brothers collapsed in September 2008.
Shares fell for about 17 months. Governments and central banks cut interest rates to near zero and rescued banks. The bottom came in March 2009, when news still looked terrible.
Lesson: Markets often bottom when the news is at its worst. Investors who kept investing through the crisis bought at the lowest prices of a generation.
The Covid crash (2020)
As the pandemic spread in February and March 2020, the S&P 500 fell about a third in just over a month, one of the fastest falls in history.
Then, with huge government support and rate cuts, it recovered to a new high by August 2020, while the pandemic was still raging.
Lesson: Selling in a panic can lock in losses just before a recovery. The market looks ahead, not at today's headlines.
The 2022 interest-rate shock
After years of near-zero interest rates, inflation jumped in 2021–22 and central banks raised rates faster than in decades.
Higher rates hit the most expensive growth shares hardest, because their profits lie far in the future and are worth less at higher discount rates. Bonds also fell sharply, so a classic 60/40 portfolio had one of its worst years.
Lesson: Interest rates are the 'gravity' of asset prices. When they rise, expensive long-duration assets usually fall most.
- Big falls of 30–50% happen every decade or two
- Recoveries have ranged from months to years, so money needed soon shouldn't be in shares
- Diversification, regular investing and not selling in a panic are what get investors through
Month-end prices understate the very worst days within a month, and exclude dividends, which shorten recovery times. Not a forecast.