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Tata Capital > Blog > Crucial Lessons Learned from Past Stock Market Crashes

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Crucial Lessons Learned from Past Stock Market Crashes

Crucial Lessons Learned from Past Stock Market Crashes

No one saw the pandemic coming in 2020. Or, the Dot.com bust in 2000 and the collapse of the US housing industry in 2007. However, after every economic downturn, a decline in stock prices was inevitable. The market crashof 2020 is a recent example of this. 

We had started making a slow but steady recovery in the last quarter of 2021. But a clear recoup is still out of sight. Now, the war between Ukraine and Russia is having a ripple effect on the global economy. So, if you’re feeling the jitters, you’re not alone. But, what now? History may have some clues.

Here are four crucial lessons we’ve learned from the previous market collapses. 

1. Markets Always Bounce Back

One look at the history of market crashes, and you’ll know. No matter how hard the Sensex hits bottom, there is always a bounce back. Because the ebbs and dips of the stock market are actually cyclical in nature. 

Take the Indian market crashof 2016, for example. Sensex had fallen below the crucial mark of 26,000 at one point. Yet, the markets recovered in 2017 and clocked the best returns in almost three years.  

2. Tendency to Join the Herd

When the markets hit bottoms, a frenzy rises among the players, as seen in the stock market crash 2021. Many unsuspecting investors start lobbying the bear rally to purchase or redeem shares in a panic. 

However, if history is any indicator, staying put is always the best foot forward. Because after every crash, major or mini, we have recovered after a few sessions and reached new highs. So whatever your investment strategy, don’t change it. 

Stay invested and expand your horizon for a longer-term. Only then can you book handsome profits. 

Additional Read – Russia-Ukraine Crisis: 5 Tips on How to Handle Your Investments

3. Better to Focus on Company Fundamentals

In every economic downturn, some win while some lose. After the pandemic, we saw it first-hand when the IT industry surged and real estate took a more brutal beating. Naturally, you would want to find some hidden gems or move your money from one sector to another. But if you feel the itch to speculate and take some calculated risks, don’t scratch yet. 

Why? Because this is another form of timing the market. So, if you are going to buy on dips, focus on companies with sound fundamentals, as they have a higher chance of weathering the storm unharmed.

4. Sitting Tight is Often the Best

It takes around 536 days for markets to recover from a fall of 20% or more. Yes, bear markets last longer.

However, once the markets recover, the prices of shares also rise more dramatically than they fell. So, it’s best not to indulge in panic selling and wait for the recovery. Or focus on rebalancing your portfolio of stocks and mutual funds. Since the prices are down, bear markets are good for reorienting portfolios to meet the target allocation. 

Additional Read – 2022 Stock Market CRASH? How to Profit in a BEAR Market?

In Conclusion

There are no gains without pain when it comes to the share market. However, keeping pace with the stock market is no easy feat. If you don’t want to miss a good investment opportunity, try the Moneyfy app and get all the stock market information in one place. 

Download Moneyfy App
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