Market crashes happen. When the next one comes along — and it surely will, perhaps today, perhaps years from now — some number of people will seem to have presciently predicted it. Many more will try to take credit for having done so. Still, since such major catastrophic events don’t happen all that often and since there doesn’t seem to be any good reason to think that any particular person will have it right, acting on such predictions is dangerous business indeed...
As the legendary investor Peter Lynch cautioned, “Far more money has been lost by investors … trying to anticipate corrections than has been lost in corrections themselves.” That’s largely because big crashes (as opposed to corrections — which are common) don’t happen all that often. The worst one-day market loss occurred on Black Monday, October 19, 1987, when the Dow lost over 22 percent of its value. The biggest one-day loss in 2008 was 7.87 percent; in 2001 it was 7.13 percent. Over longer time periods there have been four secular bear market periods (see below, from Doug Short) when peak-to-valley losses were much greater.
...Market crashes occur more frequently than major seismic events at Yellowstone, but they still aren’t nearly as common as they are commonly predicted. So the next time you see an article about Yellowstone predicting impending doom remember that calderas are busy places and the media loves its disasters. There is probably no reason to get too worked up. And the next time you see an article predicting a major market crash remember that markets are wildly busy places and the media loves its disasters there too.
It's nice to have a historical perspective, but one can't help but feel a tad troubled by the greatest money-printing exercise in world history.
Hat tip: BadBlue Money.