Will the Coronavirus Go Down as the Worst Stock Market Crash, Ever?

In a recent episode of the Investing for Beginners Podcast, Andrew and Dave talked about the coronavirus and the impact that it has been having on the market and it really sparked my interest and posed the question – will the coronavirus go down as the worst stock market crash, ever?

I think that the first question that we need to ask ourselves is “what does the term ‘worst’ actually mean?” 

That’s simple – it means the WORST, right?  Well, is it the longest crash, the fastest crash, the deepest crash?  Worst can be relative depending on the situation that you’re in.

For the most part, the stock market crash of 1929 is largely considered the worst stock market crash of all time, and it’s where the term ‘Black Tuesday’ came about.  So, what happened in 1929 then?  The History Channel does a great job of summarizing the actual events and timelines, but essentially things were going really, really well in the economy and on Black Tuesday, 16 million shares were traded in the same day and it caused for the things to really spiral out of control and this is what kickstarted the Great Depression. 

The ‘Black Tuesday’ Stock Market Crash

On 9/16/1929, the S&P 500 was trading at $31.86.  How pathetic is that?  The S&P 500 just a couple months ago was around $3,400!  What peasants, right?

Well, you have to take into account the inflation in the past 91 years, amongst other things, but yes, the S&P 500 was much, much lower than it is today.  During this timeframe, the S&P 500 dropped pretty quickly, getting to $17.66 on 11/13/1929 and then after a period of short rebounds and continued declines, the S&P hit it’s low on 6/1/1932 of $4.40. 


No Bueno, mi amigos.

The S&P lost about 44% in just under two months and then continued to fall an additional 42% over the next few years for a grand total decrease of 86%!  For perspective, if today’s market was to have an equivalent drop, it would have to go from $3,380 all the way down to $473.26!

Personally, I do not think that there is any chance that the market falls that low during these crazy coronavirus times, so unless you think that it will drop that far, it’s safe to say that the coronavirus scare is not worse than Black Tuesday.

The Stock Market Crash of 2009

A more recent scenario for investors that might be a little bit more relatable would be to compare it to the stock market crash of 2009.  During this time period, the market topped on 10/10/2007 at $1,565 and it bottomed on 3/10/2009 at $679, a decrease of nearly 57%!

Similar to most crashes, this one fell pretty quick as it dropped 27% from 9/29/08 to 12/1/08 and had four different days that were over a decrease of 7.75% from the previous day, but there were also some good days mixed in.  There was a total of 5 days during this same time frame that helped to weather the storm a bit and kept the market from dropping even faster than it initially did.

That being said, the price on 12/1/08 was still $889, and with the bottom being $679, that meant that there still was another 24% left to fall from the price on 12/1/08.

So, what does all of this tell you?  Well, to me, it tells me that these crashes are NORMAL!

They come around more frequently than you think and guess what, so far, the stock market has a 100% success rate of turning it around and getting back to a very profitable stance for those investors.

What to Do When the Stock Market is Crashing

I previously have written an article about how even if you sell low and buy high, aka the worst thing you can do, you can still make a ton of money, but when you start to see the market drop like this, why not buy a little bit the entire way down?

Anytime there’s a major crash going on, I recommend that your dollar cost average the whole way down rather than trying to time the market.  Of course, timing the market would be way better if you could guarantee that you were going to hit the bottom, but that is very rarely the case. 

Imagine if the market dropped 20% and you thought it was the bottom, so you put 100% of your extra money in.  Then the market drops another 10%, to be sitting at 30% down total, and you sell because you decided that it actually might go further down.  Instead, the market then rebounds 10% to go back to being down 20%, so you buy in for the fear that the crash is over and that stocks might start going right back up.

All that you did was lose 10% by trying to time the market and then ended up buying back in at the exact spot you did the first time, but with 10% less cash because you kept trying to time it.

Long story, short – dollar cost averaging can help eliminate this risk.

Sure, the performance of your portfolio is going to look really, really bad…in the short-term!  But we’re long-term investors here, right?  Let’s do a little bit of math.

If you had $10,000 in the market at the peak price in 2007, then you would’ve lost a ton of money, right?  Well, only for unrealized losses because you never sold.  If you held onto that $10,000, your total return would have been 60.3% as of 3/16/20. 

Not too shabby considering that you bought at the high, went through the market crash of 08, and am in the midst of the coronavirus crash.

Now, if you had put an additional $500 every month during the crash, your return would’ve boosted up to 75.75% because your average purchase price dropped significantly since you continued to buy on the way down.  If you did the same exact thing again but with $1000 instead of $500, your new return would’ve been 82.47%.

The Bottom Line

So, what is the lesson here?  Buy and hold!

But back to the original question of ‘Will the Coronavirus Go Down as the Worst Stock Market Crash, Ever?’  Well, to be honest, I think it’s pretty obvious that the answer is a resounding no.  I don’t think anything will ever touch Black Tuesday, and to be honest, this coronavirus crash is really following the trend of 2008 at this point.

We’re about one month into this crash and the S&P 500 is down 29% while the S&P was down 27% in about a month in 2008.  You might look at that and think that it’s actually going twice as fast, but I attribute a lot of this move due to the drop-in oil prices as well as simply the ability to gather information easier.  I think that so many people can get information so fast that they’re willing to pull the trigger and buy or sell stocks at the first piece of news that they see.

Buying the rumor and selling the news is something that you can definitely do…. if you want to lose all of your money.  It’s a very risky business that I recommend you stay away from.

At the end of the day, the coronavirus crash is just a crash at this point.  Things really seem as bad as they can in terms of the uncertainty of the world and the market isn’t responding too awfully compared to other crashes.  Start your dollar cost average process to try to take advantage of some of these cheaper prices on companies. 

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