Crash

A crash is a sharp, severe collapse in prices over a very short period. Unlike a bear market that grinds lower over months, a crash is the market falling in on itself within days or even a single session.

Why so fast? Because many buyers on the way up were using borrowed money. Once prices drop below a threshold, they are forced to sell to repay those loans, that selling drives prices lower, and the next round of forced selling follows. Layer fear on top and the market fills with people selling not because they want to but because they must.

History repeats the pattern: the crash of 1929, the dot-com bust in 2000, the 2008 financial crisis, the opening weeks of the 2020 pandemic. The common thread is not the crash itself but the debt that piled up beforehand, accompanied by the claim that this time is different.

What an individual can prepare is structure, not prediction: do not invest with borrowed money, hold several months of expenses in cash, and spread your assets. With those three in place, a crash becomes an event you can sit through, and possibly a chance to buy good assets cheaply. With debt and concentration instead, the same crash becomes an unrecoverable loss. What decides the outcome is not the market but the condition you were in before it fell.