Is History Really Repeating Itself?

The S&P 500 is down more than 20% since the start of the year, the NASDAQ is down 30%, and the Dow Jones is down 13%. So far, it’s one of the worst years in stock market history. When things get this bad, the press is flooded with comparisons to other big events, like the crash of 2008, the Dotcom crash in 2000, and of course, the Great Depression.

Are these comparisons accurate? The media has its own reasons for making these comparisons. The scarier the headline, the more attention it gets, and the more ad revenue it brings in. People with Twitter and Youtube accounts profit from the same attention, so there is a huge incentive for all the headlines you see to be instilling fear. On the other hand, some people benefit from going against the grain - being contrarians. So it’s going to be very hard to get an accurate market view and objective information by just scrolling through the average Twitter feed or looking at Youtube videos. Around 80-90% of that content is probably useless and may actually be hurting your ability to think clearly.

In that case, what can we do to get accurate information and profit in the market? The key is not to have a bias and listen directly to what the market is telling you, with everything else being secondary. Of course, 2022 and 2008 are years with completely different things happening. Arguing over how they differ in terms of geopolitical and economic events is pointless. The problem with this frame of thinking is that it’s focusing on the wrong thing. Does it really matter what occurred in 2008 or 1929? Here’s a little challenge…

These are all weekly charts of the Dow Jones, so they’re all significant bear markets. Can you tell me which year this occurred?

This one?

How about this?

This?

This one?

And this?



None of them are the Great Depression. In order, the crashes are in 1917, 1903, 1966, 1937, and 1907. The last one is 2008. Were you able to tell which year was which? Probably not.

Markets don’t reflect the historical situation of the day they reflect the sentiment of the buyers and sellers. When fear steps into the picture, it doesn’t matter what year it is or what’s going on in the world. That’s why you couldn’t tell the charts apart, human nature has always been the same. Trying to determine what will happen next based on news, events, and opinions is not very effective. That’s what I meant when I said to listen directly to what the market is telling you. Look for patterns and find opportunities in price action, trends, volume, and volatility. These are the inner workings and rhythm of the market; the interactions of buyers and sellers, supply and demand. This is what translates into profit.

Outside events are secondary and they don’t dictate the next move of the market, only buyers and sellers do. Prices can go up or down much farther than anyone could have thought, whether it’s justified or not. When a stampede is coming your way, it doesn't matter if they were scared by a lion or a mouse.