======Market Crash======
A market crash is a sudden, dramatic, and often unexpected drop in [[stock market]] prices across a significant cross-section of the market. While there's no official definition, a decline of 10% or more in a major stock index, like the [[S&P 500]], over a day or a few days is widely considered a crash. It feels like the floor has fallen out from under the investment world. Panic spreads like wildfire, and the screens glow red with losses. For many, a crash is a terrifying event, wiping out wealth and shaking confidence. However, for the disciplined [[value investing]] practitioner, a market crash isn't the end of the world; it can be the beginning of a once-in-a-generation opportunity. It's when the market's fear creates the very bargains that build long-term wealth.
===== What Causes a Market Crash? =====
Market crashes aren't born in a vacuum. They are typically the explosive finale to a period of excessive optimism and speculation, often called a [[speculative bubble]]. During a bubble, [[asset]] prices are pushed far above their real worth, fueled by a "this time it's different" mentality. Eventually, a trigger—like a major bank failure, a pandemic, or a sudden economic downturn—pricks the bubble. This trigger ignites the real cause of the crash: human psychology. Fear takes over, leading to widespread [[panic selling]]. As investors rush for the exits, a phenomenon known as [[herd behavior]] kicks in, where people sell simply because everyone else is selling, driving prices down even further in a vicious cycle.
===== A Value Investor's Perspective on Crashes =====
While the media portrays crashes as pure catastrophe, legendary investors see them differently. [[Warren Buffett]] famously advised investors to "be fearful when others are greedy, and greedy when others are fearful." A market crash is the ultimate manifestation of widespread fear, and for a value investor, that's a ringing dinner bell.
==== The Silver Lining: Crashes Create Bargains ====
The core principle of value investing is to buy wonderful companies for less than they are truly worth (their [[intrinsic value]]). In a normal, rational market, great companies often trade at fair or even expensive prices. A crash, however, is an //irrational// event. In the panic, investors sell everything indiscriminately—the good, the bad, and the ugly. This means the stocks of fantastic, profitable, and durable businesses can suddenly be bought at a huge discount. The difference between the low market price and the company's higher intrinsic value creates a comfortable [[margin of safety]], which is the value investor's best friend and primary defense against loss.
==== Surviving and Thriving in a Crash ====
Instead of fearing a crash, a value investor prepares for one. Here’s how you can turn a market storm to your advantage:
  * **Stay Calm and Rational:** The worst thing you can do is join the panicked herd and sell your quality investments at a loss. Remember why you bought them in the first place. If the business is still sound, the low price is an illusion created by fear, not a reflection of the company's true worth.
  * **Have a Watchlist Ready:** Don't wait for the crash to start looking for bargains. Keep a running list of high-quality companies you'd love to own. Research them, understand their business, and calculate what you believe is a fair price. When the market crashes, you'll be ready to act decisively instead of being paralyzed by chaos.
  * **Keep Some "Dry Powder":** Always have some cash on hand. This "dry powder" is your opportunity fund. When others are forced to sell, you can step in and buy wonderful businesses at fire-sale prices.
===== Famous Market Crashes in History =====
History is littered with market crashes, and each one teaches us that they are a recurring feature of markets, not a bug.
  * **[[Wall Street Crash of 1929]]:** The most infamous crash in history, it ushered in the Great Depression and demonstrated the devastating economic impact of a market collapse.
  * **[[Black Monday (1987)]]:** A sudden and severe crash where the Dow Jones Industrial Average fell by 22.6% in a single day, largely attributed to new-fangled program trading. The market, however, recovered relatively quickly.
  * **The [[Dot-com Bubble]] Burst (2000-2002):** The collapse of a massive bubble in technology and internet-related stocks, which saw many companies with no profits or viable business models go to zero.
  * **The [[2008 Financial Crisis]]:** Triggered by a collapse in the U.S. housing market and subprime mortgage-backed securities, this crash led to a global recession and the failure of major financial institutions like Lehman Brothers.
Each of these events felt like the end of capitalism at the time, yet in every case, the market eventually recovered and marched on to new highs. For those who held their nerve and bought into the fear, these were wealth-building moments of a lifetime.