“Three Market Crashes. One Pattern. Are We There Again?”
Markets don’t crash because people are pessimistic.
Every Crash Looks Different — Until It Doesn’t
Grow Your Pile – Market History Edition
Markets don’t crash because people are pessimistic.
They crash when optimism is fully priced in — and something unexpected breaks the story.
The headlines change.
The narratives change.
The excuses change.
But the math doesn’t.
Let’s look at the last three major U.S. stock market crashes, how bad they were, what triggered them, how long they lasted — and how today’s valuations compare.
Crash #1: The Dot-Com Bust (2000–2002)
This was a valuation-driven crash.
Companies didn’t need profits — just a “.com” in the name
Retail and institutional money piled into tech at any price
The market believed growth itself eliminated risk
The trigger:
The Fed tightened
Earnings failed to materialize
Capital dried up
The lesson:
When valuation detaches completely from cash flow, time becomes your enemy.
The market didn’t collapse overnight.
It bled for almost three years.
Crash #2: The Global Financial Crisis (2007–2009)
This was a leverage-driven crash.
Housing prices “never go down”
Banks were massively levered
Risk was hidden inside structured products
The trigger:
Rising defaults
Forced deleveraging
A loss of trust in the financial system itself
The lesson:
Leverage works until it doesn’t — and then it works in reverse, violently.
This was the deepest crash since the Great Depression.
Crash #3: The COVID Crash (2020)
This was a liquidity crash, not a valuation reset.
The economy shut down overnight
Nobody knew how bad it could get
Markets sold first and asked questions later
The trigger:
A sudden stop in global economic activity
The lesson:
When liquidity disappears, correlations go to 1.
Ironically, this became the shortest crash in history thanks to unprecedented central bank intervention.
Now Let’s Compare Valuations — CAPE vs. Traditional P/E
CAPE (Shiller P/E) smooths earnings over 10 years.
Traditional P/E looks at current or forward earnings.
Both matter — but together they tell the real story.
Why Today Is More Fragile Than It Looks
This is where people get confused.
They say:
“The forward P/E isn’t crazy.”
That’s true only if:
Earnings keep growing
Margins stay near record highs
Rates don’t rise again
Credit doesn’t crack
The dominant narrative (AI) keeps delivering
That’s not a margin of safety —
that’s a tightrope.
So What Will Trigger the Next Correction or Crash?
History suggests crashes don’t need a catastrophe.
They just need expectations to fail.
Most Likely Triggers
Earnings recession
High multiples + flat profits = fast repricing.Higher-for-longer interest rates
Even stable rates compress P/E when growth slows.Credit event
Commercial real estate, private credit, regional banks.Narrative unwind
Every era has a story. Today, that story is AI.Exogenous shock
Geopolitics, energy, supply chains.
A Historian’s Guess (Not a Prediction)
No dates. No crystal ball.
But with CAPE near 40+, history says this:
The probability of a 20–35% drawdown over the next 12–24 months rises meaningfully if earnings momentum breaks or credit stress appears.
Not certainty.
Just elevated fragility.
The Grow Your Pile Takeaway
Every crash teaches the same lesson:
Valuations tell you how far you can fall
Catalysts tell you when the fall begins
Risk management determines whether you survive it
You don’t protect your pile by predicting the crash.
You protect it by:
Respecting valuation
Limiting leverage
Avoiding “must-be-right” trades
Keeping optionality for when prices reset
Because history is very clear about one thing:
The investors who protect capital during crashes
are the ones who compound it the most afterward.