Lessons from 100+ Years of Stock Market Crashes
What Stock Market Crashes Have Taught Me About Investing: Although Their Duration and Severity Have Varied, the Market Has Always Recovered and Reached New Highs.
Dear Investors,
Stock market crashes are as old as the markets themselves.
From the Panic of 1873 to the COVID-19 plunge of 2020, these events have tested the resilience of investors and economies alike.
Yet, one truth stands out across this 100+ year history: though their duration and severity vary, the market has always recovered and soared to new heights.
Stock market crashes have been a recurring feature of financial history, shaping economies, testing investor resilience, and offering invaluable lessons.
From the Panic of 1873 to the COVID-19 plunge of 2020, these dramatic downturns have punctuated the past 150 years—a period marked by wars, technological revolutions, economic cycles, and societal shifts.
Yet, amid the chaos, a consistent pattern emerges: the market always recovers, often reaching new heights.
The Historical Context
The 150-year timeframe from 1871 to 2025 is more than just a span of time—it’s a window into the evolution of modern economies.
This period encompasses the tail end of the Industrial Revolution, the rise of railroads and telegraphs, two world wars, the Great Depression, the advent of computers, and the digital age.
Each era brought seismic changes that influenced the stock market, from the Panic of 1893’s railroad bust to the 2008 financial crisis’s mortgage meltdown.
These events weren’t isolated; they were shaped by their historical moment, yet they share a common thread: a sharp decline followed by recovery.
Consider the numbers: a single dollar invested in a hypothetical U.S. stock index in 1871, adjusted for inflation, would grow to $31,255 by January 2025.
This staggering growth didn’t come without turbulence—19 bear markets (drops of 20% or more) pockmarked the journey.
The “Lost Decade” (2000–2013) saw a 54% decline over the dot-com bust and Great Recession, taking 12 years to recover.
The COVID-19 crash of March 2020 dropped 19.6% but rebounded in just four months—the fastest recovery in 150 years.
The December 2021 crash, triggered by the Russia-Ukraine war and inflation, fell 28.5% and took 18 months to heal.
These ups and downs illustrate a market that’s volatile yet relentlessly upward over time.
How Often Do Crashes Happen?
Covering monthly U.S. stock returns from 1886 and annual returns from 1871 to 1885, this 150-year dataset reveals 19 bear markets—about one every eight years.
Some were brief, others agonizingly protracted.
The Great Depression’s 1929 crash slashed values by 79%, the steepest drop in this period.
The 1973–1974 crash, driven by inflation, Vietnam, and Watergate, lost 51.9% over two years.
These events aren’t outliers; they’re part of the market’s natural cycle.
Each crash has its own story:
Panic of 1893: Railroad overexpansion and a gold run sparked a 30% drop.
Black Monday 1987: Computerized trading amplified a 22.6% single-day plunge.
Dot-Com Bust 2000: Speculative tech investments collapsed, cutting 49%.
2008 Financial Crisis: A housing bubble burst, dragging markets down 57%.
Despite their unique triggers, these crashes follow a familiar arc: a precipitous fall, a period of uncertainty, and a climb back to stability.
This predictability within chaos offers comfort—and a roadmap for navigating future downturns.
Measuring the Pain
Not all crashes are equal. A 20% drop that recovers in months feels different from a 50% plunge that lingers for years.
The “pain index” quantifies this by measuring both the depth of a decline and the time to recovery, benchmarking everything against the Great Depression (set at 100%).
The index calculates the “area” of loss—the cumulative value lost between the peak and recovery—relative to the 1929 crash.
Here’s how it works in practice:
Great Depression (1929–1936): A 79% drop and multi-year recovery = 100% pain.
Cuban Missile Crisis (1962): A 22.8% drop, recovered in under a year = 3.5% pain.
COVID-19 Crash (2020): A 19.6% plunge, back in four months = 1.2% pain.
December 2021 Crash: A 28.5% drop, 18-month recovery = ranks 11th in pain.
This metric reveals why the Great Depression looms so large—it wasn’t just the percentage loss but the prolonged suffering.
Conversely, the COVID crash, despite its intensity, was a blip due to its swift rebound.
For investors, the pain index contextualizes volatility, showing that duration often matters more than depth.
The 5 Most Brutal Crashes
Let’s trace $100 through five defining crashes to see the market’s resilience in action:
World War I and Flu (1911–1919)
Starting Point: $100 in June 1911.
Crash: Antitrust breakup of Standard Oil, then WWI in 1914, followed by the 1918 flu pandemic.
Low: $49.04 in 1917.
Recovery: $100 by 1919.
Insight: Global crises pile on, but peace and adaptation fuel recovery.
Great Depression and WWII (1929–1945)
Starting Point: $100 in 1929.
Crash: 79% loss to $21 by 1932; partial recovery to $100.23 by 1936; WWII dropped it to $52.49 in 1938.
Recovery: $104.88 by February 1945.
Insight: Policy errors (tight money in the 1930s) and war prolonged pain, but resilience prevailed.
Inflation, Vietnam, and Watergate (1973–1982)
Starting Point: $100 in early 1973.
Crash: Oil shocks, war unrest, and political scandal cut it to $48.13 by late 1974.
Recovery: Over nine years to $100.
Insight: Inflation echoes today’s concerns, yet markets endured.
Lost Decade (2000–2013)
Starting Point: $100 in August 2000.
Crash: Dot-com bust to $52.76; Great Recession bottomed at $46.
Recovery: $100 by May 2013.
Insight: Back-to-back blows test patience, but growth resumes.
COVID-19 and Beyond (2020–2022)
Starting Point: $100 in early 2020.
Crash: $80.40 in March 2020; $71.50 after the 2021 crash.
Recovery: $100 by mid-2023.
Insight: Speedy recoveries can follow sharp drops when conditions align.
Lessons from Years of Turmoil
What wisdom can we distill from this history? Here are the key takeaways:
Crashes Are Inevitable, Recoveries Are Too
The market’s worst moments—79% in 1929, 54% in the Lost Decade—gave way to new highs. No crash has been permanent.Timing Varies Wildly
Four months for COVID, 12 years for the Lost Decade—patience is non-negotiable.Emotional Discipline Pays Off
Panic-selling locks in losses; holding through the storm reaps rewards. That 1871 dollar became $31,255 by staying invested.Diversification Mitigates Risk
The dot-com bust crushed tech; 2008 hit financials. A balanced portfolio softens the blow.History Informs Strategy
The 1970s inflation crash suggests focusing on real assets and dividends today. The COVID rebound highlights the power of adaptability.Context Shapes Impact
Wars, pandemics, and policy shifts amplify crashes, but innovation and growth drive recoveries.
Applying the Lessons Today
The COVID-19 crash offers a modern lens.
On March 9, 2020, the market dropped 8% in a day, part of a 19.6% plunge.
Fear was palpable—lockdowns loomed, uncertainty reigned.
Yet, by July 2020, it was back, fueled by stimulus, vaccine hopes, and tech resilience.
Compare that to 1929: no safety nets, no rapid response—just a 79% drop and years of stagnation.
Today’s markets benefit from lessons past: central banks act fast, information flows freely, and investors are savvier.
The 2021 crash, with its 28.5% drop, took longer—18 months—amid inflation and war, but recovery still came.
The stock market’s ability to rise from ashes is remarkable.
From the Panic of 1873 to the digital disruptions of 2025, it reflects human ingenuity and economic adaptability.
Each crash, however brutal, is a chapter in a story of progress.
That $1 in 1871 becoming $31,255 by 2025 isn’t luck—it’s the reward of enduring volatility.
So, what’s the takeaway for today?
Build a diversified portfolio, align it with your goals and risk tolerance, and stay the course.
Crashes will strike—perhaps tomorrow, perhaps in a decade—but they’ll pass.
Whether it’s the next Great Depression or a fleeting dip, history assures us: the market climbs again.
Embrace the long view, and let resilience guide your path.
Sincerely,
The Pareto Investor
This time it's different.
Great article. Love both the message and the charts and tables that back it up.