Friday File: Turtling Up? | Stock Gumshoe

The world has gone a bit nutty, and it seems like investors are turtling up to some degree, pulling back into their shells to wait for some of the storms to pass. If you’re paying any attention to the headlines or the big stock market moves, times like this can be emotionally exhausting — and that’s really reflected by the size of the one-day moves in the stock market.

This is a list I grabbed from Wikipedia of the biggest one day moves in the S&P 500 over the past 100 years, and I think there are two lessons in this chart: The first is that volatility clusters, with the very best days coming right near the very worst days, which means that if you follow the natural impulse to sell after a bad day and buy back in after a good day, you can lose a lot of money very quickly; and the second is that given the company we’re keeping, it’s pretty clear that this past week has been a momentous moment in stock market history. Even though the big 10%+ drop last week was spread over two days, so didn’t quite make the cut on the “worst days in history” list (the partial rebound did make the “best days” cut).

So in some ways, the challenge for investors is that we’re in scary company — when you look at recent trading volatility, and the only periods that are comparable to today are the month of the COVID collapse in March of 2020, the first few months of the Global Financial Crisis in 2008, the days around “Black Monday” in 1987, and the early years of the Great Depression (late 1920s through the start of World War II, including the massive 1929 crash), that’s not encouraging. Even if we now know that things mostly worked out OK after those tumultuous periods.

Yes, it took the market more than 20 years to recover from the 1929 crash, and ~5 years to recover from 2008… but 1987 was actually a positive year, Black Monday was more of a blip and a quick reset, and we at least know the world didn’t come to an end after any of those periods. And many people thought it would, at the time. In March of 2020 and October-December of 2008, the two eras that many investors might …