Friday, 31 July 2020

Lessons from Past Stock Market Crashes



The current pandemic is relentless in its impact. As difficult as the current situation may be, we are certain about one thing – markets will recover sooner or later.


Image: https://www.stockinvestor.com

Here are some historical market crashes of note:
·                1929: The Great Depression
·                1946: Post World War II
·                1961: Cold War concerns
·                1968: High Inflation and the Vietnam War
·                1973: The end of the Bretton Woods monetary system
·                1980: Interest rate hikes and rise in unemployment
·                1987: Introduction of computerized trading
·                1997: Asian Financial Crisis
·                2000: Bursting of the dot-com bubble
·                2007-08: Collapse of the US housing market causing an economic recession around the world

These are global events that had significant effects on stock markets in most countries. However, markets always bounced back and investors who weathered the storm earned good returns.

What Do We Learn? 

Lesson #1 : Don’t fall prey to selling your investments in a panic. Understand the difference between a notional loss and a realized loss. 

Lesson # 2 : Usually, during a market crash, some companies don’t have the core strength to weather the storm. Ensure that you are investing in fundamentally strong companies.

Lesson # 3: Avoid the urge to invest in a lump sum and increase the risk of losses by choosing the wrong investments. Instead, have a slow and steady approach to investing.
Lesson #4 :You will feel the urge to speculate – DON’T! Stick with the basics of investments.

Lesson #5 : Historically, markets have always recovered from crashes and bounced back higher and stronger. Look at the longer-term and adjust your portfolio accordingly.

Volatility is the inherent nature of a market. Crashes and rallies are a part of it. When faced with a difficult situation, it is best to turn to history and learn some crucial lessons. To survive stock market crashes, assess your investment portfolio, hold on to good stocks, and keep a long-term perspective. Stay calm and safe. 

Reference:
5 Crucial Lessons Learned from Past Stock Market Crashes, Devyani Mishra, 13 Apr 2020 (https://groww.in)


SELAMAT HARI RAYA AIDILADHA!

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