Unit 2 · Level 4 · Market history
Crashes & recoveries
1929: the Dow lost roughly 89% and needed decades to reclaim its peak. 1987: -22.6% in a single day, new highs within about two years. 2000: the Nasdaq fell ~78% and stayed underwater ~15 years. 2008: the S&P 500 dropped ~57%, recovered by 2013. 2020: -34% in five weeks, back in months. Every broad-index crash so far has been followed by recovery. 'So far' is the honest part, and 'eventually' has ranged from months to decades.
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What you get asked
Match each crash to its signature fact
Different triggers (leverage, program trading, dot-com mania, mortgages, a virus), same eventual shape. The variable is how long 'eventually' takes.
Crash math: a market falls 50%. What percentage GAIN does it need just to get back to where it started?
€100 → €50 needs to double: a 100% gain to undo a 50% loss. Losses are asymmetric, which is one reason recoveries can take years even when markets rise briskly.
What did all five great crashes have in common?
Diversified indexes recovered every time, so far. Many individual companies inside them never did, and 'eventually' after 1929 or 2000 tested a generation's patience.
Honest framing: so far, every broad-market crash has been followed by a ___, but no law of nature guarantees the next one.
History is evidence, not a promise. It's strong evidence, though, which is why the plan says hold the world, not hold your breath.
Given this history, what should a long-term index investor actually plan for?
You WILL live through several -30% to -50% episodes. The plan that wins is the one written with that assumption baked in. 🐜
The rest of this unit
A century of crashes, recoveries and expensive lessons. Read before repeating.