Since its 2026 closing low on 30 March, the S&P 500 has soared to a series of fresh highs. As I write, the US index stands 19.4% above this year’s bottom. To me, this resembles the run-ups to the 2000-2003, 2007-2009 and spring 2025 stock market crashes. But what can investors learn from previous price plunges?
Risky business
I started investing in the 1980s, so I’ve lived through six major market meltdowns. In the first — Black Monday (19 October 1987) — the S&P 500 collapsed by 20.5% in one day. Yet the index ended that year up 2% (excluding cash dividends).
Lesson #1: over decades, and in hindsight, even brutal market falls can resemble tiny bumps in the road.
My next stock market crash was the ‘dotcom bubble’ bursting. During this financial panic, the hugely overvalued US Nasdaq Composite index was crushed, plummeting 78% from March 2000 to October 2002.
Lesson #2: when share prices become crazy, financial gravity eventually brings them back to earth with a bang.
My third market rout was the global financial crisis (GFC) of 2007-2009. Back then, things got so bad that it capitalism itself was wobbling and panic hit high streets as savers rushed to withdraw cash from ailing banks.
Lesson #3? Buy during times of maximum despair. Our family investments made in March 2009 are now worth 10+ times what we paid.
Remember the Covid-19 crisis of 2020/21? The US and UK stock markets both crashed 35% in a month before rebounding strongly.
Lesson #4: following Warren Buffett’s advice, my wife and I were greedy when others were fearful, putting 50% of our fortune into shares just as markets turned. Market timing may be for mugs, but this one decision paid off big-time.
Lesson #5: we always keep cash to buy more shares at fair or bargain prices. Lately, around a sixth of our portfolio is in low-risk, low-fee money-market funds as a cash reserve.
Baking bad?
I try to avoid the worst of market meltdowns by buying cheap shares. Sometimes, I buy into established companies after sudden price slides. For example, we bought Greggs (LSE: GRG) shares for 1,696.7p each after a one-day price plunge last July.
Greggs stock is down 14.8% over one year and 30% over five years. Currently, this FTSE 250 stock trades at 1,743p, valuing this leading ‘food to go’ chain at £1.8bn.
However, these returns exclude dividends, which are increasingly generous from this British business. The shares’ 4% dividend yield easily beats the FTSE 100’s cash yield of 3.1% a year.
Greggs sells a wide range of reasonably priced food and drinks through 2,600 UK outlets. Yet, the shares are far below their all-time high of 3,443p hit on 31 December 2021. Today, trading on just 14.6 times trailing earnings, I would argue this stock is already in the bargain bin and ripe for recovery.
