I have been working in financial markets for 25 years now and within that time I have focussed on the most volatile of all markets – the emerging ones.
Every few years there is a stockmarket crisis of some sort, all of which feel terminal at the time, all of which provide valuable investment lessons not-learnt, and all of which end up in hindsight a blip in the long-term returns chart for a good-quality compounding stock - or, for that matter, real estate or private company.
My first stockmarket crash was in 1997 in Asia. I was working for the respected house of Robert Fleming, who offered me the opportunity to go out to Hong Kong and help run the emerging markets desk there.
The day that I landed the markets fell 10% in one day and then collapsed by as much as 90% in USD in a matter of months.
The Asian bull-run was over. People were taking flights to Indonesia and Thailand to buy bags of jewels and Rolex watches, such was the immediate depreciation of the local currencies, and canny old-timers were simply buying for all they were worth: stocks, bonds, property - whatever they could get their hands on. Note, if something falls 90%, it needs to go up roughly 10 times to get back to where it started.
The recovery is where investors can make real returns and market crashes are the time to buy the long term holdings that will power your wealth into the future and help fund your retirement.
The second stockmarket crash was the dot-com bubble in 2000. I had left Flemings to set up an online construction equipment auction website - selling cranes and so on to the US over the internet.
The euphoria around the run-up to 2000 was phenomenal. Many investors made significant returns trading stocks they had barely ever heard of.
Once again, in a few months the stocks fell over 90% and billions were wiped off the face of the earth. Again, wily investors bought into wonderful companies such as Google and Microsoft for a fraction of what they are worth now.
So, again, the lesson is hold fire, wait and buy for the long term.
The next bear market came in 2008. We all know that one well, but the recovery in 2009 was without a doubt one of the best times for investors to make returns.
The recovery was sharp and many investors did what is so tempting to do, the reverse trade: they sell their high beta stocks at the bottom and buy 'safe/quality' companies, thus locking in the downside.
The lesson of 2008: if you hold on, hold on all the way or take the risk on at the bottom of the market.
Again, everything was thrown out with the bathwater and lifetime stocks, which are usually just too expensive, became cheap, giving investors rare access to these golden geese.