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Forever New: Every Crash Is A 'Surprise'

Kevin Wilson profile picture
Kevin Wilson


  • From time to time those of us who are intrigued by human nature get a chance to witness mass hysteria, courtesy of the markets.
  • Human nature being what it is, this involves shocking swings between euphoria and panic; this volatility has been played out repeatedly, such as in 1929, 1987, 2002, 2008, and 2020.
  • Mr. Market punished prudent investors for years during the formation of the bubble, rewarding the most careless punters for "buying the dips," only to suddenly change the game without notice.
  • But there are always warnings that prudent investors could've used to limit their risk; whereas inexperienced optimists and the greedy have walked right over the precipice, once again.
  • Prudent investors should cut their exposure to SPY, DIA, and QQQ during any rallies; they should consider holding WHOSX, TLT, IAU, SLV, and OTCRX.



From time to time, those of us who are intrigued by human nature get a chance to witness mass hysteria courtesy of the markets. Human nature being what it is, this involves sometimes shocking swings between euphoria and panic (Chart 1). This kind of swing from one irrational belief to another has been played out by Mr. Market on many occasions, including during the long-lasting Great Crash of 1929-1932, which virtually destroyed investors with losses totaling 89% (cf. Kevin Wilson, 2018a). There was also the demise of the Nifty Fifty in the 1970s (cf. Kevin Wilson, 2016a), the shockingly sudden 30%+ Crash of October 1987 (Kevin Wilson, 2016b), and the extended, truly devastating Dot-Com Crash of 2000-2002, which treated Nasdaq (e.g., Invesco QQQ Trust [QQQ]) speculators to a massive 77% loss (cf. Kevin Wilson, 2016c; Tara Clarke, 2015). Of course, there was also the Great Financial Crisis of 2007-2009, which pounded investors with a 54% loss on the S&P 500 (cf. Kevin Wilson, 2019a). In each of these cases investor euphoria led to very high or even extremely high valuations that had little or no grounding in actual fundamentals, but was instead driven by a popular theme that it was "different this time." Each of these cases ended in huge losses for those who bought in late (because the most shares are generally bought at the top) and/or those who hung on regardless of the downside risk, until major losses had accumulated (at least on paper, but often enough as realized losses).

Chart 1: The Emotional Roller Coaster of the Markets


An historical event that looks a lot like the present (perhaps only partially-done), rapid draw-down is the famous Crash of October, 1987 (Chart 2), which was not accompanied by a recession, but nevertheless involved a very rapid loss of over 35%, including 22% on

This article was written by

Kevin Wilson profile picture
Kevin was the CEO and founder of Blue Water Capital Advisors, which he sold and retired from in late 2017. He is now working on a book about natural history, and writing once in a while for Seeking Alpha. He was in the financial advisory business for 25 years. This was not his first career. He was a petroleum geologist and academic research scientist for 17 years before joining the financial industry. Kevin’s keen sense of risk-reward dynamics was developed during his geological career when he served as an exploration team leader and senior manager in the oil and gas exploration business. He drilled over 100 wells on his own geological interpretations and found millions of barrels of oil. This was a very high risk kind of business, and Kevin learned a great deal about how risk really works from his experiences in exploration geology. He was also an instructor at The University of New Hampshire and an Asst. Prof. at Bryn Mawr College for several years and has published 12 papers in international scientific journals and books. Highlights of Kevin’s geological career include surviving a violent well blowout, working as a consultant to Phillips Petroleum, Texaco, Exxon, and numerous independent firms, acting as a Principal Investigator on a dinosaur dig in Montana, working as a team member and lead author on paleoclimate research, diving Australia’s Great Barrier Reef, teaching and advising students, receiving numerous research awards and grants, and conducting funded scientific research on sedimentology, paleoceanography, paleoclimatology, geochemistry, and global plate tectonics. Kevin left his geology career when the global oil price collapse finally caught up to him in 1992. He went into the financial advising industry because his father had been a nationally-ranked leader in that field with a major national firm, so he felt comfortable with making the transition. Over the years he was awarded the Chartered Financial Consultant (ChFC) designation and completed about half of the coursework for a Master’s degree in Financial Services. Kevin served as a Trust Officer and Vice President for a major Midwestern regional bank for seven years, and served as a Senior Vice President at National Bank of Commerce in Duluth, MN for four years. He was a member and board member of the Arrowhead Estate Planning Council for a number of years. He has a refined sense of the big economic picture that is grounded in his ability to differentiate meaningful information from “noise,” as he once did while working in science and petroleum geology.

Analyst’s Disclosure: I am/we are long WHOSX, TLT, OTCRX, IAU, SLV. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Disclaimer: This article is intended to provide information to interested parties. As I have no knowledge of individual investor circumstances, goals, and/or portfolio concentration or diversification, readers are expected to complete their own due diligence before purchasing any stocks or other securities mentioned or recommended. This post is illustrative and educational and is not a specific recommendation or an offer of products or services. Past performance is not an indicator of future performance.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (29)

Great article-Very informative, but a bit too bearish.
Trump/Fed will do their best to slow this process down, but a pandemic event will not be stopped by $$$. We need cure/vaccine - the key.
If you can sleep at night, Raise some cash - 25%-50% for later use (money management is the key to weather the storm).
@Kevin Wilson
First, thanks for the interesting article. I read all your articles and find they are well argued and articulate. Keep ‘em coming...
Second, “This no doubt makes me appear to be the "Boy Who Cried Wolf," and also perhaps some kind of perma-bear.” At least you have the intellectual honesty to admit your bias.
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Think Long Term profile picture
With China manufacturing PMI at 35.7 and negative 2.5% GDP, this market is going to crash hard. I bet we’re at 2500 S&P by end of week. Fed rate cut is just more proof global recession underway. Get out while you can.
Wilbur76 profile picture
Anyone with common sense can see that the modern equities markets have become little more than Ponzy Schemes, with the top 1% being the first in and the first out, leaving the family's 401k holding the (empty) bag. And the Fed being the printer and pumper of liquidity when sword of Damocles (economics) raises his hand. The white house is insisting that the last of our rations be handed out to the first class passengers at the first signs of water in the boat. Really people? You can only live a lie for "just so long."
One additional point - there is no panic like the panic of the computer algorithms. This trading cannot stop for a minute to think, because it is programmatic by definition. such automatic pilot trading intensifies whichever direction the market is going.

Of course, this a wonderful opportunity for individual investors who aren't computer programs.
I sneer are Haussmann because he’s made his investors little to no money since 2000. Yes his timing is impeccable
Lake OZ boater profile picture
Great article ! Economist David Rosenberg aligns with your view, and is warning of deflation and recession. From the Barron's interview:

"Your best strategy is to buy 30-year zero-coupon bonds, which will generate equity-like returns without taking on equity risk. That is my No. 1 recommendation for the next 12 to 24 months. If the long bond can make you 20% total return in 2019, when the S&P 500 made 30%, imagine what the long bond does if we enter into a bear market in equities."


Disclosure: I am long PHYS, SGOL, EDV, and VGLT
Great piece! Thanks for the charting and time investment to put this together. While I can see you would profit from a market downturn, I agree you are correct in positioning yourself to do so and am doing the same. I hope we are both right.
Cheeky Kid
Market Map profile picture
In the E book "Improving Asset Accumulation: Tactical “Buy & Hold” with Exchange Traded Funds" *, Chart 1 in the "Historical Context of Stock Market Returns" section, shows that since 1920, the "trend" of the equity market has been rising ( at 7.7% clip inflation adjusted ). 71% of the years since 1954 have produced a positive return ( Chart 2 ). And 29% of the years have produced a "negative" decline ( Chart 3 ). Investment in U.S. equities have been one greatest drivers of wealth for over 100 years.

Once in a great while, "significant" market decline periods have occurred, with Chart 4 in "Historical Context .. " showing these periods occurring only 6% of the time over 70 years. These periods have been identified by the use of two data series. Historically, primary equity market "uptrends" have correlated well to the "trend" of the Conference Board Leading Economic Index coordinated and cross validated by the "market trend" ( S&P 500 in relation to it's long length moving average ).

As described in Part 2 * , when used in combination, the change in these trends have identified significant and systemic market declines over the last 50+ years, with validation occurring even during the 1929 - 1932 period ( see "Conclusion and Appendix", the "Strategy during the Great Depression" section ). In ALL significant decline periods, allocation towards duration assets produced positive results ( Table 1, Part 2 * ).

Occasionally, a market "correction" occurs. In the "Placing Market Corrections in Context
to the “Trend”" Part 2 *, Chart 3 shows market "corrections" greater than 5% during positive market trend trend periods since 1970. These corrections can be emotionally disconcerting and may be rationalized by a "news driven" event and may cause an uninformed investor to sell equity assets "prematurely". Yet as long as the market / economic trends have remained positive, these "dips" have been "contained", and market prices ultimately resume an upward rise ( ). And there have even been intra year "bear market" sized market declines that have occurred within positive economic CB LEI trend environments ( 1987 and the most recent being the 4th quarter of 2018), ones that would have tried an investor's resolve even further.

If and when "a catalyst" arises that affects the underlying components of the Conference Board LEI / trend of the economy, so much so to change the trend to negative, history has shown that the risk of a significant market decline / regression to the mean may increase ( accompanied by a negative SP 500 versus moving average, which just crossed below at close Feb 28th )**. Could the "Coronavirus" be a catalyst that effects the underlying trend of the CB LEI enough to turn it negative ( the Conference Board LEI data is published Thursday, March 19 ) ? Or will the market produce a viscous bounce back above the moving average that causes investors to regret that they sold and scramble back into stocks at new highs ?
. . . .
* tinyurl.com/y6z8njmp ( Paste link into browser )
** tinyurl.com/y9rrzral
necto profile picture
In my opinion, there is a classic check of the stomach of investors.
4 reasons for the furious market rally today:

1. Coronavirus fears for those ages 1-60 years old continuing to diminish, though concerns may have expanded for the elderly and other high risk groups. That additional information increases confidence that such a pandemic can be managed.

2. Steyer, Buttigieg, and Klobuchar, dropping out all work against Sanders. The stock market is tanking mostly because of Coronavirus, but there is a kernel of Sanders in the decline.

3. FED signaling it will support markets;

4. Some of the biggest gain days in market history have come in the midst of highly volatile bear markets.

I'm not making any prediction on nearterm market direction.
Why dont you write this article last week when stocks were dropping? lol typical riding the wave. What do you think it will happen later this week and next week? Right? you dont know. Your 100 page analysis just as good as mine and my prediction has been correct for the last 12 days on how market behave on the daily basis.
ErpichtAuf profile picture
The way I remember 2007 to 2009 it wasn't investor euphoria in the stock market that led to the those difficulties.
LOL market back up 5%.. in another week it'll be like the C-virus had absolutely no impact at all on businesses
right? People are just playing the market
ShermanMcCoy profile picture
Every day more capital is created and every day it has to find a home. In a World where returns on bonds are likely to remain negative FOREVER, equities and in particular secular growth stories, will remain the only game in town.
Been here before. This is a buying opportunity. Be conservative, diversified, and cover the planet. Spend less than you earn, invest your savings, be careful who you vote for, become wealthy!
Martin Lowy profile picture
Excellent analysis. I agree the downside still outweighs the upside--by quite a bit. Down 13% from the high is not that much when one compares the examples you mentioned. Even the quickie 1987 crashette was over 25%. And at least I thought it was over about when it was over. (But I was too busy at work to invest much at that time.) The virus and the governmental reactions to it are not going away soon. So I think we are in for more pain.
arthur_bishop1972 profile picture
1987 crash was 22.6%-NOT over 25%.
Mack Attack profile picture
Excellent article. Love all the data!

I do think this is a tad bearish, historically the worst corrections are in the 50% range (but I will concede the author has a point: this is a historically high valuation).

One point though: the tech sector has always had very high valuations, and the tech sector now disproportionately weighs the SPY, QQQ etc. perhaps higher valuations are inevitable? If that is the case then corrections will be much larger going forward.
@Kevin Wilson

Your thesis is right that there were countless warning signs of a market crash. Your evidence however is staggeringly blind. The evidence wasn't/isn't the charts and your calculations man. It was when the world's second largest economy completely shut down in quarantine for Covid-19. There was an 800lb gorilla sitting staring at everyone and most people covered their eyes exclaiming: "I don't see you! I don't see you!" And they are still doing it even now. Ha!

Everybody had about a good month and half to see this coming now. Haha you guys on here are a total gas man. Even now so many authors/subscribers on here still don't get it.

Pure hubris.
Long-Short Manager profile picture
I agree. The author left out the fact that anyone who did not see this coming had to be ignorant of modern air travel and how respiratory viruses work. They're like our national health authorities who waited until we had hundreds of undetected and 80+ detected cases to ramp up local testing when we could have had them up and running by late Jan at airports as flights arrived, diverting people to alternate exits and to isolation, as a function of where they had travelled. Now it is more about mitigation than prevention. Now the elderly are starting to pay the price in large numbers.
@Long-Short Manager

Well said. Now 100 cases...we don't have any test kits...now they tell everyone masks don't work. I sure saw all medical staff wearing their N95 masks when they were hauling a body out of that nursing home in WA state. Hmmm. If they aren't needed then why wear them?

Another good one is now they are saying the CDC lab manufacturing tests is contaminated. We are all on our own.
@Long-Short Manager you nailed it...the incompetent planning and response by the Trump Administration are going to fuel this sell-off for weeks, maybe months to come. Like market participants over the last 2 months, how they did not see these coming is beyond belief. What's going to make it worse is the fact that Trump continues to spread falsehoods and lies about the situation, instilling no confidence in the market, or the American people for that matter.
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