Getting as tired of recycled bear market puns as you are of FTSE nosedives? You’re not alone. But the repetition could be something to take comfort in – at least where the puns are concerned. Because, for better or worse, all of this has happened before. Stock market crashes aren’t particularly unusual and they certainly aren’t the harbingers of doom. They’re scary, for sure, and make you want to grab your money and run, but the past tells us they (almost always) bounce back, meaning the people who stay put tend to be the best off. So let’s review the history books…
19th October, 1987 - worldwide
When markets crashed in Hong Kong, a global domino effect spread to Europe and then the US. It resulted in a 22.6% drop in value of the Dow Jones Industrial Average in one day – the largest fall in 30 years. Many investors panicked and sold out. But not the patient ones. A £10,000 investment dropped to £6,610 in a matter of weeks – but its value had risen to a whopping £32,690 by 1997, showing patience often pays.
10th March, 2000 – US
Things looked bleak for the Nasdaq following the turn of the century. Peaking at 5,133, the technology-heavy index then fell by 78% in just 30 months. The dot-com bubble had burst. But did it spell the end for companies such as Amazon and eBay? Clearly not. They’ve gone on to make investors a pretty penny, with the Nasdaq today sitting at 7,875.
15th September, 2008 – worldwide
Still fresh in the mind of many investors is Lehman Brothers filing for Chapter 11 bankruptcy protection. Triggering a financial crisis that almost toppled the entire banking system, and causing the FTSE 100 to sink by 47%, this severe crash led to frantic selling and phenomenal losses. Those who bought at the peak had a five-year wait for the stock market to recover. But it’s not all bad news: many investors will have kept receiving their dividends and, by now, will have seen a return to their gains. Again, patience is key.
29th December, 1989 – Japan
Japan’s Nikkei Stock Average finished the year at an all-time high of 38,916. Not bad, until reality set in. For years, a so-called asset bubble had sent property prices rocketing into the stratosphere… and what goes up must come down. This time in the form of a deflationary recession. Today, after almost 30 years, the Nikkei Stock Average still only sits at 17,000. So although patience often pays, the lesson here is this: don’t put all your eggs in one basket.
US research group Dalbar runs a study on investor behaviour each year. It has found investors have lost an average of 8% per year over the last 30 years as a result of buying at the wrong time and selling at the wrong time. As such, the usual advice is to stay invested, no matter how uncomfortable it feels.
It’s hard advice to keep to when the FTSE 100 has dropped a third of its value since the start of the year, but if you’re in it for the long term – fingers crossed – you should be okay. Keep calm, lose your online investing account passwords, and carry on.
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