After the US attacked Iran on 27 February, financial markets started sliding. By 30 March, the US S&P 500 index was 9.4% below its record high. However, this fell short of a correction, when prices fall 10%+ from the previous peak. It’s also far from a full-blown stock-market crash (price plunges of 20%+).
Mr Market’s meltdowns
I began investing in 1986/87, so I’ve lived through many market wobbles. Yet I’ve witnessed only six proper stock-market crashes in four decades — including three since 2019.
The first — and perhaps most shocking — collapse came on Black Monday, 19 October 1987. On that day, the S&P 500 plummeted by 20.5%, producing the only 24-hour stock-market crash in my lifetime. However, the index ended 1987 slightly ahead. This delivered my first lesson: sudden, sharp market falls later appear as mere blips for long-term investors.
My second lesson came after the bursting of the ‘dotcom bubble’. From March 2000 to October 2002, the tech-heavy Nasdaq Composite index nosedived by 78%. This taught me that the more overvalued assets are, the harder prices plunge when bubbles burst.
My third market failure was the global financial crisis (GFC) of 2007/09. I vividly recall the S&P 500 hitting 666 points — the biblical ‘Number of the Beast’. Back then, it felt like capitalism itself was close to collapse. Yet the S&P 500 has soared more than tenfold since, teaching me to buy stocks during times of maximum misery.
Lesson #4: as the Covid-19 pandemic swept the globe, investors started panic-selling risky assets. In five weeks, both the S&P 500 and FTSE 100 had dived 35%. Remembering the wise words of legendary investor Warren Buffett, my wife and I were “greedy when others were fearful”, investing 50% of our entire wealth into shares during these lows. Our subsequent returns have been life-changing, demonstrating that time heals all wounds — including financial trauma.
Lesson #5: during turbulent times, cash can often be king. Also, spreading money around diversifies portfolio risk to ride out stock-market crashes. For safety’s sake, we now own low-risk money-market funds.
Down, but not out?
Of course, some stocks keep sliding, even during the biggest market booms. Take the shares of Diageo (LSE: DGE), the global alcoholic-drinks Goliath. While other stocks have boomed over the last five years, Diageo shares have crashed by 55.1%. They are also down by 30% in the past 12 months.
On Friday, 10 April, the Diageo share price closed at 1,441p, valuing the group at £32bn. This is perhaps a third of its peak valuation at end-2021. Yet the producer of Guinness stout, Johnnie Walker whisky, Smirnoff vodka, and Tanqueray gin has origins dating back almost four centuries.
Then again, the global market for alcohol has weakened since the post-Covid boom of 2021/22. Diageo’s sales growth has turned negative, dragging down its earnings and cash flow. By the way, my family portfolio paid 2,806.6p a share for our Diageo shares in January 2024. To date, we are sitting on a painful paper loss of 48.7% (excluding dividends, which were recently halved).
After suffering its own brutal stock-market crash, I am hopeful that Diageo’s CEO Sir Dave Lewis will turn this tanker around. Indeed, I’m thinking about doubling down on this stock. Meanwhile, I’m hoping the share price rebounds in 2026/27!
