When it comes to financial crises, we’ve all become unwilling experts. The question isn’t whether another crisis will come—it’s how prepared you’ll be when it arrives.
My Journey Through Multiple Market Crashes
Back in 2013, I knew virtually nothing about economics or investing. My first attempt at learning was a massive trading book that I abandoned after three pages—the complexity was overwhelming. Everything changed when I met someone who explained investing using simple, practical terms.
I dove headfirst into learning. I devoured books, research papers, and spent countless hours watching YouTube tutorials. I even took free online summer courses from Stanford and Harvard. Within months, I finally understood what was happening in the global economy during events like the 2008 financial crisis, the European debt crisis, and various political upheavals.
Since 2013, I’ve developed thick skin as an investor by living through multiple crises: the 2015-2016 market volatility, the 2020 COVID pandemic crash, and ongoing interest rate turbulence. Each crisis taught me valuable lessons about timing, psychology, and opportunity.
Understanding Market Crises: When Fear Creates Opportunity
What Actually Causes Financial Crises?
To keep this simple, most financial crises stem from two main factors: political instability and mass behavioral psychology. Think about the Dutch Tulip Mania of 1637, the 2008 US subprime mortgage crisis, or the 2011 European debt crisis—all followed this pattern.
Political factors affect economic cycles through interest rate policies, government spending, and regulatory changes. Ray Dalio explains this beautifully in his economic cycle videos, showing how interest rates drive credit availability, investment flows, and national growth or stagnation.
Mass psychology creates bubbles and crashes. The recent GameStop/Reddit WallStreetBets phenomenon is a perfect example—collective behavior can drive prices far beyond rational valuations, both up and down.
How to Spot a Crisis Before It Hits
Recognizing a crisis isn’t rocket science. Here are practical indicators I use:
The VIX (Volatility Index): Developed by the Chicago Mercantile Exchange, this measures market fear. Above 30 typically signals panic; below 15 suggests complacency.
Google Trends: Track search terms like “recession,” “market crash,” or “unemployment” in your region. Spikes often precede or coincide with economic troubles.
Social Media Sentiment: When financial topics dominate social media discussions, something significant is usually happening. Academic research validates this as a leading indicator.
Currency Movements: When the dollar strengthens rapidly against other currencies (or weakens if you’re outside the US), it often signals global economic stress.
Real-World Observations: During the 2008 crisis, I noticed increased homelessness, more crime in my area, and friends losing jobs before the media fully recognized the recession’s severity.
Media Contrarian Indicators: Research shows that trading against mainstream financial media headlines can be surprisingly effective. For example, buying Bitcoin when CNBC headlines were most negative had over 90% success rates.
CNN Fear & Greed Index: This combines multiple metrics including the VIX to gauge market sentiment between extreme fear and extreme greed.
Profiting from Economic Chaos
As John D. Rockefeller reportedly said: “The way to make money is to buy when blood is running in the streets.”
The Interest Rate Strategy
A veteran Wall Street trader once told me:
- Low interest rates: Buy stocks, avoid bonds
- High interest rates: Buy bonds, avoid stocks
This makes sense because high interest rates make bonds more attractive while making stocks less appealing (companies face higher borrowing costs). Low rates do the opposite.
The challenge? Timing.
My Personal Crisis Investment Approach
Perfect timing is impossible, so I’ve adopted this strategy:
Buy Phase: I purchase when others are panicking and there’s “blood in the streets.” This means buying during market crashes when everyone else is selling.
Hold Phase: I maintain positions as long as the underlying value remains intact. This requires fundamental analysis and patience.
Sell Phase: I take partial profits when euphoria peaks and everyone (including my barber) is talking about hot stocks. For example, when Bitcoin dominated dinner conversations in late 2021, it was time to reduce exposure.
Practical Crisis Strategies Beyond Investing
1. Increase Your Earning Capacity
Instead of just focusing on investment returns, work on increasing your income. This could mean:
- Learning new skills through free online courses
- Starting a side business or freelance work
- Networking with people you admire
- Taking on additional responsibilities at work
Small actions compound over time. Start driving for Uber, selling items online, or offering freelance services. The goal is to create multiple income streams before you need them.
2. Maintain Physical and Mental Health
This is massively underestimated. Regular exercise reduces anxiety and stress while increasing endorphins and overall health. You don’t need expensive gym memberships—walking, biking, or bodyweight exercises work fine.
During market volatility, physical fitness helps you maintain emotional equilibrium, making better investment decisions instead of panic selling or FOMO buying.
3. Review Investments Less Frequently
I recommend monthly reviews at most, preferably quarterly or annually. This reduces the urge to make emotional decisions based on short-term market movements.
Use the extra time for productive activities: learn new skills, spend time with family, pursue hobbies, or simply catch up on Netflix. An occupied mind makes fewer impulsive financial decisions.
Major US Economic Crises: Historical Context
The Great Depression (1929-1939)
- Stock market crash of 1929
- GDP fell by approximately 30%
- Unemployment reached 25%
- Led to significant banking and regulatory reforms
Black Monday (1987)
- Dow Jones fell 22.6% in a single day
- Caused by computer trading and portfolio insurance
- Market recovered within two years
Dot-Com Bubble (2000-2002)
- NASDAQ fell 78% from its peak
- Technology stocks collapsed
- Led to recession and job losses in tech sector
2008 Financial Crisis
- Housing market collapse
- Major bank failures (Lehman Brothers)
- GDP fell 4.3% in 2009
- Unemployment reached 10%
COVID-19 Pandemic (2020)
- Markets fell 34% in five weeks
- Massive government intervention
- Fastest recovery in market history due to stimulus
Frequently Asked Questions
Q: What was America’s worst economic crisis? The Great Depression (1929-1939) remains the most severe, with GDP falling 30% and unemployment reaching 25%. However, the 2008 financial crisis was the worst since then.
Q: How long do crises typically last? Market crashes are often short-lived (weeks to months), but economic recessions can last 6-18 months on average. The recovery period varies significantly.
Q: Should I try to time the market? Rather than perfect timing, focus on being “roughly right” rather than “precisely wrong.” Buy quality assets when they’re clearly undervalued and sell when they’re obviously overvalued.
Key Takeaways
Financial crises are inevitable, but they create the best investment opportunities for prepared investors. Success comes from:
- Education: Understanding market cycles and psychology
- Preparation: Having cash reserves and a clear strategy
- Discipline: Sticking to your plan when emotions run high
- Patience: Allowing time for markets to recover
- Diversification: Not putting all eggs in one basket
Remember, every crisis in history has eventually ended, and markets have reached new highs. The investors who profit most are those who can maintain perspective and act rationally when others cannot.
The next crisis will come—make sure you’re ready to profit from it rather than become its victim.