No crisis, slump, selloffs, recessions, and even depressions last forever. The markets eventually recover so when you start buying and adding when the markets are low due to panic and media hysteria, you will end up ahead of the game at the end.

Even in 1930 depression, which lasted some 20+ years (if you bought at pre-crash highs) and you added or bought during the market slump you still got better off.

People like to compare 1930 market with today’s market and freak out about a prospect of a prolonged recession/depression and future lost decades, but they are comparing something which is not comparable.

It is the same as with this covid-19 artificial hysteria being compared to 1918 flu pandemic. But again, here you are comparing uncomparable. How can you compare a healthcare system of 1918 with capabilities and capacities of healthcare 2020?! In 1918 we didn’t even have penicillin! Ventilators? Forget it! Health insurance? Forget it… It didn’t exist back then. And same goes with the stock market. SEC didn’t exist (whether they matter much or not these days), regulations didn’t exist, FED failed to respond as aggressively as it is responding today: they lowered interest rates only once from 6% to 4% and completely failed in purchasing debt from banks, they started purchasing debt note in 1932 when the damage was already done, there was no employees’ safety net such as unemployment insurance, food stamps, or other measures the FED and government have and use today.

So saying that today, we are heading to a long term suffering and depression is ignoring today’s social and economic power of our society and economy. And it doesn’t matter, what wide range of FED conspiracy, economy, and market manipulation theories you believe.

Let’s look at the market history and how long would you have to wait for the markets to recover if you were unlucky enough to buy at the very top:
 

 

1929 – 1960
If you bought in 1929 at the top, it took about 31 years for the market to reach those same levels. But, don’t forget how the market operated back then vs. today. It would be yet another mistake to say, the market today is the same as it was in 1929. It was not. Investing in the stock market back then, and well into 40’s to 60’s, was considered a speculative game which the true gentlemen avoid. A true gentleman buys bonds, not stocks (re: “Common Stocks As Long Term Investments”, Edgar Lawrence Smith), so only a very little public participated in the stock market (e.g. Jesse Livermore). Stock buybacks were extremely rare back then and up to 80’s semi-legal or pure illegal.

1965 – 2007
The recovery took 30 years but we were in the same boat as before. The share buybacks took place after 1980 and in 1995 computers started being involved in trading. Although NASDAQ was founded in 1971, the true electronic trading as we know it today started picking up in wide scale when personal computers (PCs) reached households in 1995. There you can start seeing a sharp rise of market as general public started participating in trading. This was also a period when 401k plans were started (1980) and started picking up on a larger scale when defined benefit plans were slowly and inevitably abandoned by companies. Today, as I know, only teachers (and possibly only some) and USPS still operate and provide defined benefit plans. Everyone else is participating on defined contribution plans. Add to it that computerized high frequency trading started in 2000 (it was here since 1930 though the speed and scale skyrocketed in 2000 and beyond). All this caused the markets rallies became sharper and higher, leading people into thinking that FED, HFT, and aliens from Mars manipulate the market. Declines too became sharper, deeper, violent, but shorter in duration.

2000 – 2007
Computerized trading, 401k funds, ETF funds, hedge funds, algorithmic trading, massive public participation in the stock market, speed, instant information about the market and economy, FED’s aggressive policies compared to the past make the markets responding faster with greater volatility to any economic blip in the news. This caused the true recovery took 7 years instead of 30 years.

2008 – 2013
The information speed, computerized trading, access to cheap cash, all that causes reckless trading and overextending the markets or economic policies. This will be happening and there is no way to prevent humans greed or fear. We will always screw things up no matter how many rules you put in place. This crisis took about 5 years to recover.

Will today be different?
And it is my belief, that this trend of faster trading, faster declines, and faster recoveries will continue to certain extend. But yes, you need to be prepared for a situation that you buy stocks and the market will decline and stay down for a prolonged period of time. This will also be happening. But should this prevent you from investing? My answer is a resounding no. On the contrary, you should be buying now. You should have been buying back in March. And if we decline again in the near future to retest the lows, you still should be buying. Even if the market stays down longer than 5 or 7 years, you still will be better off if you keep buying now.

How do I protect myself in this market?
To protect myself in this market is to use a strategy which is less affected by declines. First, my strategy is oriented to generating income. If you are a growth investor and buy stocks which generate nothing, only growth, you may stay underwater for a very long period of time. Look at the Apple (AAPL) chart. Apple could drop and stay down for up to two years before it picked up again. If you bought in September 2012, it took until September 2014 to recover. If you bought in 2015, it took until 2017 to recover, and in 2018 it took until 2019.

And there are stocks which stayed down for years or never recovered (for example Yahoo!). That is a reason I seek income from my assets. One way to monetize my assets I hold is, of course, buying dividend stocks, ideally those, which increase dividends even during crisis. Another way, an investor can add to protecting income and value of her portfolio is using options and monetizing their portfolio selling covered calls against assets you own, or selling puts to buy assets you want to own. That way, you collect premiums (you may look at it as another dividend) on top of the dividends and it allows you to generate income. And that income can be then used to purchase more assets, or just withdraw from your account and spend however you want, for example pay your bills, or buy an ice cream. And you can do it even in time of crisis, recession, or depression, no matter how long it lasts.