How often is there a stock market crash?

All the major indexes in the world are moving from record to record, closing at an ever-higher level. For years, the world’s stock exchanges have known only one direction – to the north. Many investors can not remember any major crashes or have never experienced them themselves.

We are now in the ninth year of a bull market both in Germany and in all other major economies. In my view, it is time to start thinking about a possible end to this trend. And since the ascent usually takes longer than the descent, I’ve made a few thoughts on the frequency of crashes on the stock exchanges.

What is a crash anyway?
Before we go into the history of the major indices, we must first clarify what exactly is understood by a stock market crash. I once looked at Wikipedia. There is the following to “stock market crash”:

Stock market crash is called an extreme price collapse on the stock market. It takes a few days to a few weeks. During this time dominate – mostly panicky – sales, which lead to drastically falling courses.

Stock market crash usually occur at the end of a speculative bubble.

There is no clear definition of stock market crash. Unlike the bear market, prices fall faster and more suddenly, an expression of panic sales.

So a stock market crash is a steep price slump that takes place within a short time. Okay, so it’s very nice to read on a chart how many times there has been a crash in recent years.

In the history of the well-known American S&P 500 there are some crash days.

First place is October 19th, 1987. The famous “black Monday” has given the index a daily loss of 20.47%. The background of the crash are manifold.

It was preceded by a US Fed rate hike after a long period of no interest rate adjustment (which sounds familiar to me). In addition, there was much uncertainty about the stability of the dollar (that too is not unknown today).

In addition, dealers began using computers in the 1980s and performance was simply overestimated. The programs all had similar hedging strategies, and thus, after the first sell-offs, there was an intensifying effect as the programs continued to sell.

Big daily losses are rare …
From the biggest losses, you can see that there were no double-digit daily losses except once in each case. One of the reasons is that for many years there have been automatic trading stoppages that intervene with losses of more than 10%, thus slowing down panic and at least distributing the loss.

The current central bank policy also plays a major role in the increasingly lenient “crashes” of recent years. Due to the almost unlimited liquidity and the spasmodic search for yield of the markets, every major reset will be bought almost “immediately”.

However, over the past 20 years, this development has meant that although daily losses have become smaller, the fall that usually takes place in connection with a crash has turned out to be much tougher. For example, the bear markets from 2000 to 2002 and from 2007 to 2009, with a total loss of 49% and 52% for the S&P 500, were significantly more pronounced than in previous decades.

However, you can clearly see in the overviews that a stock market crash in the form of a very strong daily loss is only “relatively” rare. Now of course you should not go out cheerfully and buy shares of the DAX, just because I write here, that a stock market crash rarely occurs!

It depends on the selection
Rather, you should select your investments very targeted and try to buy the stock at a fair price for you. The time of purchase plays a minor role. If you bought on 18.10.87, that was certainly not the perfect time. But even if you had bought on 10/18/87, your investment would have been worth just over two years after the biggest daily crash of the last few decades, more than before the purchase. In the following days, after a strong sell off, there are usually follow-up purchases that at least make the price look a little better, and if you are patient, the price will rise again in the strongest bear market at some point.

So in the next crash: stay cool, think for yourself and analyze the situation … and only then take action! No panic!