The main points are:
Fear Management in Market Crashes
Understanding the extent and length of losses can remove fear.
Expect to experience periods of losses before gains in crash buying.
Science Behind Crash Buying Execution
Start buying at -10% decline.
Buy more heavily at -20% to -25% decline.
Question posed: *Why not wait until -30% to -40%?* (This implies a strategy based on averaging in early rather than trying to time the very bottom.)
Reiteration of Fear Management
Same as point 1: knowing the expected losses beforehand reduces fear.
Personal Strategy & Execution Logic
Rule: No buying occurs until the market has declined by at least -10%.
Method: Uses a scaled, incremental buying plan ("shots") triggered by further declines.
Initial positions are small.
Buy more at each subsequent ~2.5% decline.
Position size increases as the crash deepens (Small → Medium → Large → Heaviest).
Peak Deployment: The largest capital allocation is reserved for the -25% to -30% decline range.
Core Doctrine: Conserve emotional and financial courage for the deeper crash levels (~25%), not the initial decline (~10%).
Psychology & Managing Fear in Crashes
Universal Feeling: Every crash feels catastrophic in the moment, triggering instinctive panic.
Key Challenges (The "Unknowns"):
Chaotic Feeling: The event feels unpredictable and is amplified by media fear.
Unknown Severity: Investors cannot know how deep the crash will go ("how bad is bad?").
Unknown Duration: The timeline for recovery is a mystery.
Root of Fear: Fear stems from a lack of awareness of historical market distributions (patterns), not from the losses themselves.
Antidote to Fear: Having a clear, pre-defined plan provides manageability. The plan is built on:
A Financial Safety Net (ensuring you can withstand losses).
The Heavier Hammer Concept (increasing bets as prices fall).
Emotional Neutrality (sticking to the logic, not the emotion).
The Two Foundational Questions
To invest confidently during crashes, you must answer two core questions:
Frequency: How often do drawdowns of different sizes actually occur historically? Knowing this turns abstract fear into concrete probability.
Recovery: If you buy during a decline, how long do you historically need to wait to break even? This addresses the most pressing investor anxiety.
Method: The presentation will answer these using 100 years of S&P 500 data to analyze the distribution of drawdowns and the mathematics of recovery.
Distribution of Drawdowns (The Concept)
The logical starting point for confident crash investing is understanding historical frequency.
Key Premise: Historical market data reveals clear patterns in how often different declines occur. This knowledge is foundational for setting realistic expectations and making decisions.
Understanding Frequency to Control Fear
Market corrections and crashes happen with predictable regularity, but their severity varies greatly.
Magnitude Determines Rarity & Strategy:
A -10% correction is a normal, expected part of market cycles.
A -50% crash represents a rare, systemic failure and a generational event.
Core Takeaway: Understanding the historical frequency of declines of different sizes is the critical first step to controlling fear (because you know what is "normal" vs. "exceptional").
Historical Distribution Table (S&P 500, 100 Years)
Core Insight: Declines happen with predictable, tiered frequency. Their rarity increases sharply as severity deepens.
Specific Tiers & Frequencies:
-10%+: ~30-35 times (~every 3 years). Normal correction.
-15%+: ~20-22 times (~every 4-5 years). Serious pullback.
-20%+: ~14-15 times (~every 6-7 years). Bear market.
-25%+: ~9-10 times (~every 10 years). Deep stress (e.g., 2022).
-30%+: ~6-7 times (~every 15 years). Crisis (e.g., 2020 COVID).
-40%+: Very rare. Structural/systemic fear (e.g., 1973, 2001).
-50%+: Once a generation. System failure (e.g., 2008 GFC, Great Depression).
Drawdown Distribution Visualized
The frequency of crashes drops exponentially beyond the -20% to -30% range.
This visualization underscores that catastrophic drawdowns (-40% or more) are statistically rare events, not common occurrences.
Key Takeaways from the Distribution
Context for Emotional Calibration: Knowing the historical probability allows you to match your emotional response to the statistical reality of the decline.
Summary of Tiers:
-10%: Common and normal.
-15%: Uncomfortable but frequent; tests discipline.
-20%: Serious; bear market territory.
-25% to -30%: Rare and meaningful; crisis-level events.
Beyond -30%: Requires systemic failure; these are generational events.
Practical Implication: A -15% decline is statistically routine, not extraordinary. This knowledge should temper panic.
Overall Synthesis: The data provides a probabilistic map of market declines, showing that severe crashes are rare, while moderate pullbacks are a regular feature of market cycles. This factual foundation is key to managing fear.
The Core Question of Recovery
While knowing crash frequency is helpful, the question that truly haunts investors is: "How long will I be stuck?"
This section shifts focus from frequency to recovery timelines, examining how long it historically takes to break even when buying at different points during a decline.
The core promise is that the data on recovery times "may surprise you."
Defining the Framework for Breakeven Analysis
Concept: To measure recovery, you track the time from your specific entry price back to that same price.
Setup: The analysis uses a hypothetical market peak (Index = 100) and examines buying at different drawdown levels (e.g., -10%, -15%, -20%).
Key Metric: The critical question is not "When will the market reach a new all-time high?" but rather: "How long does it take for the index to recover back to my specific purchase price?"
Why It Matters: This waiting period—the time from purchase to breakeven—is what defines the investor's emotional and financial experience during a crash.
:
Breakeven from a -10% Entry Point
Historical Pattern: Even when buying relatively early in a decline, recovery to the purchase price (breakeven) has a manageable historical timeframe.
Typical Timeframe: For a -10% entry, the typical time to breakeven across major crises was approximately 3–4 years (excluding the anomalous recovery from the 2020 pandemic).
Key Insight: This shows that "early" buyers are not stuck indefinitely, even if the market continues to fall significantly after their purchase.
Breakeven from a -15% Entry Point
Core Finding: Entering at a deeper decline (-15%) historically accelerates recovery.
Typical Timeframe: Breakeven from a -15% entry typically takes 2–3 years.
Mathematical Advantage: This is roughly one year faster than entering at -10%. This demonstrates the strategic benefit of patience and waiting for a deeper pullback before deploying significant capital.
Breakeven from a -20% Entry Point
Significant Acceleration: Entering at -20% further shortens the recovery period dramatically.
Typical Timeframe: Breakeven typically occurs within 1.5 to 3 years, with many instances around 1.5–2 years.
Critical Caveat: The slide ends with the crucial practical limitation: "But the Market May Not Crash by -20%." This highlights the trade-off: while a -20% entry offers faster recovery, such a decline does not occur in every downturn. An overly rigid wait for this level could mean missing deployment opportunities in shallower corrections.
The Core Trade-Off
There is a fundamental tension in strategy: Deeper entry points historically lead to shorter recovery times.
However, waiting for a deeper entry increases the risk of missing the opportunity altogether if the market doesn't decline to that level.
Slide 2: Master Summary of Scaling-In Logic
Presents a clear, tiered strategy based on historical recovery data:
At -10% Entry: Small positions. Typical breakeven: 3–4 years. Used to establish initial market participation with disciplined patience.
At -15% Entry: Measured position increases. Typical breakeven: 2–3 years. A balanced opportunity with a reasonable recovery timeline.
At -20% Entry: Larger capital deployment. Typical breakeven: 1.5–2 years. Justified by significantly accelerated recovery potential in bear market territory.
Note: These are historical averages; individual results will vary, but the pattern is consistent.
Justification for a Spread-Out (Scaled) Approach
The strategy combines two objectives:
Prevent Inaction: Small early positions at -10% ensure you are participating and not waiting indefinitely for a deeper crash that may not come.
Optimize Recovery & Capital Efficiency: Larger positions at deeper declines (-15%, -20%+) benefit from faster historical recovery, which reduces emotional stress and uncertainty.
Core Doctrine: Courage should increase as expected pain decreases. This means deploying more capital when the statistical outlook (based on frequency and recovery math) is more favorable, even though fear is highest.
Strategic Inversion: This approach deliberately inverts natural human impulse. Instead of buying less as prices fall, the disciplined investor buys more, guided by data rather than emotion.
Why Most Investors Fail
Root Cause: The Knowledge Gap. Investors fail primarily because they lack key information about market behavior.
Four Specific Gaps:
Frequency: They don't understand the historical distribution of how often drawdowns of different sizes occur.
Recovery Math: They don't understand the mathematics and typical timelines for recovery.
Psychological Misjudgment: They overestimate the psychological duration of pain and underestimate their own capacity to endure and adapt.
Lack of Preparation: They often fail to establish two critical safeguards in advance:
A Financial Safety Net (ensuring they can withstand losses without being forced to sell).
Emotional Neutrality Techniques (training to stick to a plan under pressure).
The Mindset of Patience & Discipline
Core Principle: "It is okay to miss a crash." Patience is paramount, as the market rewards it over impulsiveness.
Three Supportive Arguments:
Another Chance Will Come: The historical frequency data proves that market declines are a recurring feature, not a one-time event.
The Cost of Inaction is Limited: Missing a single buying opportunity is survivable and only costs one chance. A long-term investor has many such opportunities.
The Cost of Breaking Discipline is Catastrophic: Abandoning your strategy—through panic selling or reckless, unplanned buying—is what can permanently damage your financial future and your confidence as an investor.
The Final, Fundamental Principle
Core Philosophy: The market does not require you to be "right" (in terms of perfect timing or prediction).
The Only Requirement: It requires you to participate without breaking your discipline.
Key Reassurances: You don't need to predict the bottom, time the perfect entry, outsmart others, or anticipate economic shifts.
What You Do Need: A foundation built on understanding probability, respecting recovery math, and maintaining emotional equilibrium.
Ultimate Rewards & Punishments:
The market rewards consistent participation.
It punishes absence (missing out).
It destroys those who abandon discipline under stress.
What Crash Buying Truly Is (And Isn't)
It is NOT about bravery or market-timing genius.
It IS about four pillars of preparation and understanding:
Knowledge: Understanding probability (drawdown frequency) and recovery patterns.
Mindset: Developing Emotional Neutrality to act without fear or greed.
Strategy: Differentiating a "Living Index Fund" vs. a "Dead Index Fund." (This implies a strategy of active, scheduled buying during declines—a "living" fund—versus a passive, static investment—a "dead" fund that doesn't take advantage of crashes).
Preparation: Having a plan, a financial safety net, and emotional training in place before a crisis.
The Final, Crucial Trade-Off (Reiterated)
This restates the central strategic tension:
Deeper entry points (e.g., -20%) offer the benefit of shorter historical recovery times.
The cost of targeting only deep entries is a higher chance of missing the opportunity if the market doesn't decline that far.
This trade-off justifies the scaled, incremental approach outlined in the entire presentation.
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