Lessons from 100 Years of Stock Market Crashes

"If you don't own stocks when they fall, you won't own them when they rise either."

– André Kostolany

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This week’s arvy’s Weekly is different. No company analysis. No “Good Story & Good Chart.” Instead, something more important. We’ve had dozens of conversations this week — with investors of the arvy community, friends, family members — and the question is always the same: “Should I sell?” This is our answer. Read it. And if you know someone who’s nervous, who’s been thinking about investing, or who’s been debating markets over dinner — forward it to them. This one’s meant to be shared.

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Minus 10%.

That’s the current drawdown from the recent highs. Red numbers everywhere. War in the Middle East. Hormuz closed. Tariffs escalating. Inflation fears returning. Recession whispers growing louder.

Your portfolio is bleeding. Your stomach is turning. And every headline is telling you to do something.

We get it. This is the moment that tests every investor. We feel it too. We’re investors ourselves — and no amount of data makes a red portfolio feel good at 7am Monday morning.

But before you make a decision you might regret for a decade — let’s look at the data.

Not opinions. Not predictions. Just data (chart 1).

Since 1950, the S&P 500 has experienced drawdowns of 15% or more roughly every three to four years. Twenty-one times in seven decades. A 20% crash. A 28% crash. A 36% crash. A 48% crash. A 57% crash during the Global Financial Crisis. A 34% crash during Covid.

Every single one of them felt like the end of the world.

And every single one of them was a buying opportunity.

The S&P 500 has returned roughly 10% per year on average — through all of it. Through world wars, oil crises, dot-com bubbles, financial meltdowns, pandemics, and geopolitical shocks.

As we wrote in our in-depth analysis this month: stock markets have survived every geopolitical crisis of the last 100 years. Without exception (Read the full article: Investing in Turbulent Times).

So, if history is this clear, why does every crash feel different?

Because of something far more powerful than any market.

Your brain.

Chart 1: Don’t Stop Investing — S&P 500 Since 1950 With All 15%+ Drawdowns

Why Your Brain Is Your Worst Investment Advisor

Humans are not wired for investing. We are wired for survival.

When your portfolio drops 10%, your brain triggers the same response as if a predator walked into the room. Fight or flight. Adrenaline. Panic. The overwhelming urge to do something — anything — to stop the pain.

This is not weakness. This is neurobiology.

Three psychological traps drive nearly every bad investment decision in a crisis:

• Loss aversion: The pain of losing CHF 10,000 feels roughly twice as intense as the joy of gaining CHF 10,000. That asymmetry is hardwired. It means falling markets feel disproportionately terrible — even when the rational case for staying invested is overwhelming.
• Availability bias: You remember the 2020 Covid crash. You remember the 2008 financial crisis. You don't remember the 47 months after March 2020 during which the S&P 500 more than doubled. Dramatic events dominate memory. Quiet recoveries don't.
• Action bias: In a crisis, doing nothing feels irresponsible. We feel compelled to act — sell, hedge, reallocate. But the data shows the opposite: the best action is almost always no action.

How costly is action at the wrong moment?

A Visual Capitalist analysis of the S&P 500 from 2003 to 2022 puts it brutally: $10,000 fully invested grew to $64,844. Missing just the 10 best trading days — seven of which occurred during bear markets — left you with $29,708 (chart 2). That's a 54% reduction in returns. Simply from not being invested at the wrong moment.

And here's the cruel irony: the best days almost always come directly after the worst ones. If you sell in panic, you miss both.

A real-time example?

Just while I was writing this week's edition, President Trump posted on Truth Social that the US and Iran have had "very good and productive conversations" and that he has ordered a five-day pause on all military strikes against Iranian energy infrastructure. Within seconds — literally seconds — markets swung from minus 1% to plus 3%.

If you had sold that morning out of fear, you would have locked in the loss and missed a 4-percentage-point swing in a single afternoon. That's not a statistic from 2003. That's not a chart from a textbook. That happened this Monday.

This is why timing the market is a fool's game. You don't just need to be right about when to sell. You need to be right about when to buy back in. And the buy signal came in the form of a tweet — with a typo — at a time nobody could have predicted.

André Kostolany said it best: whoever doesn't hold stocks when they fall, won't hold them when they rise.

So, what should you actually do?

Chart 2: The Cost of Timing the Market — Missing the 10 Best Days

Three Strategies That Actually Work During Turbulent Stock Markets

We’ve written extensively about our approach to navigating volatility in our three core principles article (Read it here: arvy’s 3 Core Principles).

Here’s the essence — distilled for this moment.

1. Strategy 1: Know what you own — and why. Peter Lynch said it: if you can’t explain in 30 seconds why a company is in your portfolio, you shouldn’t own it. This is your shield against panic. When you know that Visa earns from every card transaction on Earth, that Microsoft’s cloud contracts don’t get cancelled in a recession, that Hermès has a multi-year waiting list for their bags — you also know that a tariff dispute or a geopolitical shock changes none of that. Understanding creates conviction. Conviction prevents panic selling.
2. Strategy 2: Lump sum plus savings plan. The holy grail of investing is simple: invest a lump sum, then add a fixed amount every month via standing order. In good times, your capital participates. In bad times, you buy at lower prices. The critical part: keep the savings plan running — especially during crises. Charlie Munger said it: the first rule of compounding is never interrupt it unnecessarily.
3. Strategy 3: Increase during sharp drawdowns. Every five to seven years, markets drop 20–30% or more. These are the moments when long-term wealth is built — not despite the crisis, but because of it. When the market is 10% below its peak, consider increasing your savings plan. At 20%, invest an additional lump sum. At 30%, even more. Not all at once. Staggered, disciplined, without emotion.

These three strategies sound simple. They are. The hard part isn’t understanding them — it’s executing them when your hands are shaking and your screen is red. But the data is on your side: on average, geopolitical shocks cause a ~5% decline, recover in 28 days, and in 75% of cases the market is higher 12 months later (chart 3).

But that is exactly the difference between investors who compound wealth over decades and those who buy high and sell low. Now let’s talk about why this moment might be even more interesting than it looks.

Something has happened that usually only happens once every ten or twenty years.

Chart 3: ~5% Average Decline, 28 Days Average Recovery, 75% Higher After 12 Months

The Quality Opportunity Hiding in the Noise

Here's what almost nobody is discussing right now.

Quality stocks have had a rough stretch. For months, markets chased unprofitable businesses, meme stocks, and "the next big thing" — rewarding momentum over fundamentals, hype over margins, narrative over cash flow. Quality companies — the boring, predictable, profitable ones — were left behind.

The result? Quality stocks are underperforming the broader market at levels we haven't seen since 1999 (chart 4).

Read that again.

1999.

The peak of the dot-com bubble. The last time quality was this out of favor, the subsequent decade belonged entirely to the patient investors who stayed with fundamentals.

What happened after 1999? The quality index dramatically outperformed the broad market following the extreme. The speculative names collapsed. The quality names compounded.

And now the tide is turning.

As volatility spikes and uncertainty rises, investors are doing what they always do in turbulent markets: they rotate back to fundamentals. Predictable earnings. Strong balance sheets. Pricing power. Cash flow visibility. The "Good Story & Good Chart" companies — the ones we write about every Friday — are stabilizing fastest. Because when the world gets shaky, investors don't want "the next big thing." They want the thing that keeps working.

We're seeing it in real time. The businesses with moats and margins are finding their footing while speculative names continue to unravel. This is not a coincidence. This is the market remembering what matters.

The businesses with pricing power, recurring revenues, and irreplaceable market positions are stabilizing fastest. They always do. That's not a prediction. That's a pattern.

The best time to invest was 20 years ago. The second best time is today. Because the market doesn't reward those who predict the storm. It rewards those who stay on the ship.

If this helped — send it to someone who needs to hear it.

Stay calm. Stay invested.

Flo, Patrick & Thierry

Chart 4: Quality Stocks’ Underperformance Is at 1999 Extremes