With the markets having plunged at an unprecedented rate over the past year, it helps to look at things in a historical context to see if any parallels exist. The chart above does a fine job of showing were this current decline ranks in terms of past market disasters. I have featured it before, but it now has been updated through 3/5/09. It’s courtesy of 
[Click chart to enlarge]
To me, there are only 2 lines of interest at this particular time. The gray line, which shows the effects of the crash of 1929 and the superimposed blue line, which demonstrates the drop of the current bear market.
The similarities are striking although the 1929 the initial crash happened much faster than the current one. What turned out to be devastating back then was the rebound after the initial -47.9% drop, which lured many investors back into the market believing that the bull had returned with full force.
That wrong assumption turned out to be deadly for those holding on to their positions for dear life until there was not much left when the bear made its final curtain call after having destroyed the Dow by -89.2%.
Looking at the current bear (blue), which is showing losses of -56.4%, it becomes clear that the bottom may not have been reached. Nobody knows for sure, but those continuing to cling to their buy-and-hold philosophy have learned nothing from history (and bear markets) and may be destined to repeat it.
Comments 4
Ulli,
You and Doug Short are “tech nutlies” in the best sense of the phrase. What you point out in your graph is striking. Similarly, “The Washington Post,” on March 8 2009, on the lead, above the fold article ” titled “In Free-Fall, Stocks Hit Lowest March Since ’97” had a very interesting graph, too. It was titled “How Does This Slide Compare?” by Brenna Malloy of “The Washington Post” who used Bloomberg, Dow Jones Indexes/STOSS Ltd as her sources. What I foud extremely informative, like your graph of the Depression overlayed with the current crash is, according to the above cited graph in “The Washington Post,” the Dow lost 52% from October 9, 2008 to March 2, 2009 (roughly 4 months – parenthesis mine). During the 1929 Crash, the Dow lost 89% from September 29 – July 1932 (roughly 3 years– parenthesis mine).
It seems to me that your methodology keeps people’s losses to a minimum and maximizes their profits. Although I am not a fan of Warren Buffet and the buy and hold crowd (Buffet is said to have held for 30 years. Who can do that? I will be dead in 30 year), he is attibuted to having said one thing, which I believe is good advice, and is in line with your methodology. Buffet is attributed to having said something like it is best not to get greedy and stay in the market to milk it to the very top of the up market. I think the correlary would also be true, too — not to get back in the market too soon, as it might go lower, as you point out it did in the Depression. I think your methodology guards against that. I love how you try to maximize people’s profits, while minimizing their risks. You put your clients’ interests first, and to me, you are on the cutting edge of what investor advisors should be doing, technically and philosophically, to maximize their clients’ profits while minimizing their losses, but what, unfortunately, very investment advisors are doing.
John Cooper-Martin
John,
Your point about Warren Buffet is well taken. As the old Wall Street adage goes: Bulls make money, bears make money, but pigs get slaughtered.
Ulli…
In the above reference to the DOW dropping 52% it should be 9 Oct 2007 to 2 Mar 2009 not the four months indicated (the DOW dropped 21% during that period).
I personally don’t think mr. Investor understands what is really happening to them here. They are rapidly going broke and may never get back in their lfetime what they lost in the 2000-2003 bear and have lost so far in the current ongoing one. This secular bear could possibly only be little more than half over as bad as that sounds. Tent cities may become more and more the norm before long. It appears that people have their heads in the sand and eventually their butts may join their heads as well.