Investors should know one thing: crises have always happened, will always happen, and will probably always happen again.
It is the year 1637. In the Netherlands, the previous years were extremely profitable with tulip bulbs. Tulip bulbs were sometimes as expensive as entire apartment buildings. An insane mania had spread. But now in 1637, the first tulip bulb owners stayed on their investments. The speculative bubble began to turn into a real crash. Many – who had gotten into the market at exaggerated prices – suffered severe losses and often lost their homes. With the crash on the market for tulip bulbs, the general economy also got under the wheel.
The first speculative bubble ended in noise and the generations after would not have learned from it. Since the mid-17th century, there have been price bubbles in various countries and in various markets, which have been replaced by violent crises. A recurring cycle of boom and crash, regardless of whether it is land, real estate, stocks, bonds, raw materials, or other tradable goods.
But not every crisis, not every crash has been of the same magnitude – there seem to be differences. This refers in particular to the general economy and the stock market as a market for tradable company holdings.
Investing in a crisis is one thing. Risk-sensitive investors with a very long-term investment horizon have done well in the past when investing in the important western industrialized state equity markets and have been rewarded with decent returns. Typical cyclical crises over time could be mastered with a simple buy-and-hold strategy alone. Short-term speculators had to bring more know-how to get close to high points before a bear market and to get back around the low points and thus possibly do better than with a mere buy-and-hold strategy.
In a total crisis – which, for example, did not happen in the Federal Republic of Germany for a long time – real assets seem to be able to offer some protection against currency devaluation and possible currency reform.