We Study Billionaires - The Investor’s Podcast Network Classic 05: A History of 5 Stock Market Crashes w/ Scott Nations
Feb 1, 2022
Scott Nations, author of "A History of the United States in Five Crashes," dives deep into the significant stock market crashes from 1907 to 2010. He highlights how today's FED policies echo those leading to the 1929 crash. Nations illustrates the 1987 decline of 22.6% in just one day and critiques the 2008 financial incentives that led to a massive market failure. He warns that future crashes may resemble the rapid 2010 flash crash rather than past events, emphasizing the unpredictable nature of market dynamics.
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Portfolio Insurance and the 1987 Crash
- Portfolio insurance, designed to limit losses, ironically led to the 1987 crash.
- Its flawed assumptions about market liquidity caused a cascade of selling, overwhelming buyers.
Investment Approach
- Be wary of complex financial products; markets can fall further than expected.
- The worst time to adjust your portfolio is during a panic.
2008 Crash and Mortgage Practices
- The 2008 crash stemmed from changes in mortgage practices, where loans were sold and bundled into securities.
- This broke the link between the end investor and the borrower, leading to excessive risk-taking.
