Stock market crashes of 2000 - 2009, 1990 and 1929 have very interesting similarities. The chart shows the 1929 (Dow Jones index / US), 1990 (Nikkei index / Japan) and 2000 - 2009 (AEX index / Europe) stock market crashes. The pattern is always the same:
- Bubble / Boom: stocks rise more than 350% in 6 years.
- Stock market crash: market falls more than 50% in 3 years.
- Aftermath: markets are volatile for at least 10 years.
Turns out human nature does not change over time: greed and fear drives the market. Stock market crashes are essential parts of our economic system. Stocks are designed to capture most of the risk of our economic activities. That is why stocks have large returns, and why there will always be stock market crashes.
This analysis cannot be used as investment advice nor for predicting a stock market crash. However, these historical scenario's of stock market crashes can be used for stress testing and risk management. home
