History repeats itself. Specific details change as we step through time, but certain patterns recur again and again. This is particularly true in the stock market. Bear markets have followed bull markets since the 17th century, when Dutch investors were burned by the ‘Tulip Mania’ bubble of 1637. At the same time, bear markets come in all shapes and sizes. Sometimes crashes coincide with economic downturns. Sometimes they don’t. Some bear markets bottom out quickly, but sometimes it takes years to reach rock bottom.

With this in mind it is important to try and understand what type of bear market this ‘Corona Crash’ is. Like all bear markets, the ‘Corona Crash’ will present investors with opportunities to buy stocks at bargain prices. But where there is opportunity, there is also risk. Shareholders may get hurt if they invest before stocks reach their low point. In order to gain a deeper understanding of this bear market, I want to take a closer look at various stock market crashes that have occured in recent history, and explore what investors might expect during the drawdown of 2020.

1973: A Steeper Fall Than 1929

The crash of 1973-75 hit British stock markets hard. The financial journalist, Christopher Fields recalled that ‘it was a steeper fall than there had been in this country in the Great Crash of 1929-31’. It wiped out Jim Slater, author of The Zulu Principle. Before the markets collapsed, Slater had been a high-flying tycoon. After the crash, he retired to write childrens’ books. In his memoirs, Slater recalled that:

“1974 was to be the year of the hurricane with a vengeance. On 1 January 1974 the Financial Times 30-Share Index stood at 344. By the end of the year, the index dropped to 163." - Jim Slater

The FT 30 (precursor to the FTSE 100) lost around 70% of its value between 1973 and 1975. The index stood at 478 in January 1973. When it bottomed out in January 1975, it closed at 146.

Why did the markets collapse? Britain faced severe political and economic problems. It was often condemned as the ‘sick man of Europe’. The Arab-Israeli war of 1973 was the short-term factor which triggered the crash. The conflict caused oil prices to rocket. Inflation went through the roof, reaching 25% in 1975. At the same time, trade unions were becoming more militant. Strikes damaged…

Unlock the rest of this article with a 14 day trial

or Unlock with your email

Already have an account?
Login here