This week, 10 years ago, we faced the biggest financial crisis in modern history. This was a
market crash like no other, even more dramatic that the crash of 1929, which led to the great
A brief recap on the timelines.
- 7th September – US Government sponsored Freddie Mac and Fannie Mae mortgage lenders are put into curatorship
- 14th September – Bank of America rescues Merrill Lynch from bankruptcy
- 15th September – Lehman Brothers files for bankruptcy
- 17th September – US Government takes over AIG, the large insurance company.
The US stock market fell by 30% in the space of 3 weeks and a further 18% over the following 4 months. The total fall from the high to low points in that time was 53%.
The SA stock market fell by 29% over 5 weeks, only starting to recover 4 months later. The total fall from the high in mid 2008 to the low in March 2009 was 42%.
This was a time of great uncertainty and doubt about how long it would take to emerge from this black hole. Many people were in a state of panic.
So how did we fare?
It took the US stock markets, where the damage originated, 5 years to surpass the previous high, and has grown by a further 84% in the 5 years since then. The annual growth since the pre-crash high point has been just short of 5% per year. That growth includes the biggest crash in modern history.
It took our SA stock market, which reacted to the US shock waves, 3 years to surpass the previous high and has grown a further 76% in the 7 years since then. The annual growth since the pre-crash high point has been over 8% per year. That includes the biggest crash in modern history and the past few years of stagnant markets during the back end of the Zuma era.
So what does that teach us? It pays to take a long term view. Markets will throw surprises at us, both pleasant and unpleasant, but looking at the last crash, the recovery has been remarkable, given time.