Another bear market? After we have already 2020 (Corona) and 2022 (inflation, interest rate hikes, Ukraine war), we are now also facing a bear market in many indices in 2025 already in a bear market again.
There have never been 3 bear markets in 6 years in history - the previous maximum of 3 in 7 years was between 1902-1909 and between 1961-1968.
The difference to many other stock market crashes and bear markets is that this crash was triggered by a single man.
What happened?
What does history teach us?
How do I react to it and what are the lessons I have learned from past bear markets?
That's what this (longer) article is about
(small advertisement on my own behalf - I have also processed the topic as a YouTube video: https://youtu.be/VjNNaSXe-XE)
What happened?
On April 2, Donald Trump celebrated "Liberation Day" and far exceeded the worst fears of Wall Street, analysts, investors and companies.
Since then, stock markets around the world have slumped massively and many indices have entered a bear market. In the USA alone, over 11 trillion in market capitalization has been wiped out, equivalent to more than five times the entire DAX.
Extreme examples can also be found among the individual stocks:
Why is Donald Trump introducing these massive tariffs?
The USA has a strongly negative and growing trade deficit, which is a thorn in Donald Trump's side.
His reasoning is as follows:
- The trade deficit arises because other countries would take advantage of the USA
- This would shift jobs and ultimately prosperity from the USA to other countries
Of course, there are also more than legitimate counter-arguments:
- US citizens have enough wealth & purchasing power to buy high-quality goods from abroad
- Many goods can be produced much more cheaply abroad - for example, the iPhone, which currently costs $1,599 and would cost between $2,500 and $3,000 if produced in the USA
- Many people in industrialized countries no longer want to work in industrial jobs - even here in Germany, who wants to screw electronics together on a piecework basis? Or sew textiles?
- Who doesn't know them? American coffee or American champagne? Many products are simply not available in the USA and we are dependent on trading partners worldwide
How much will the tariffs be raised?
The scope of the tariffs can be seen very clearly in the following chart. We are now seeing tariffs the likes of which we have not seen since the 1930s and the Great Depression. Moreover, this is also a clear break with the trend towards falling tariffs that has persisted since the Second World War.
The tariffs introduced during Trump's first term in office (trade war with China and tariff disputes with the EU) are virtually invisible.
Is history repeating itself?
In order to better understand the current drama, we need to take a look at history, namely the end of the Roaring Twenties and the beginning of the 1930s.
The Roaring Twenties were a booming decade, the economy was booming and the stock markets were going through the roof.
At that time, there was also massive speculation on the stock market with loans from the bank.
When the stock market crashed in 1929 (Black Thursday) the Great Depression began. Bank failures, deflation and unemployment were the result.
As a result, the so-called Smoot-Hawley Tariff Act was announced. The Dow Jones plummeted after the Act was passed and then again a year later when the tariffs came into force.
The idea was to protect the domestic economy through tariffs and thus preserve jobs and prosperity.
However, the result was massive counter-tariffs by the trading partners.
Although imports fell by 61%, exports also fell by 66%. Total world trade fell by 60% within 3 years.
The goal of preventing unemployment was massively missed and unemployment in the USA rose to 25%.
Today, the Smoot-Hawley Act is often seen as a warning example of the negative effects of protectionism and is even listed on the official website of the US Congress as one of the "of the most disastrous laws in the history of the US Congress" .
Of course, the situations cannot be compared 1 to 1. Back then, the economy was already in recession, whereas today (before Trump) we have seen economic growth.
However, there are also parallels, such as high national debt. And of course, global trade is also much more interconnected today and therefore more vulnerable (see supply chain difficulties after coronavirus)
Incidentally, an interesting anecdote: the two senators Smoot and Hawley were massively punished in the next election and lost their seats. The Republicans also lost massively in the next election to Franklin D. Roosevelt. In the following election in 1936, the Republicans got the worst election result ever - with 8 electoral votes, while Roosevelt received 523....
How do I react to another stock market crash?
This is now the third stock market crash since 2020 with a drawdown of over 20%.
As you can see in the chart, however, the corona crash is almost no longer visible!
In hindsight, bear markets were extremely good entry points. For example, in March 2020 I bought Allianz $ALV (-0,25 %) shares for less than €120 and now have a dividend yield of over 13% p.a.
But what should you do now? Is it best to sell everything and then get back in at the low point?
I found two very interesting studies and analyses here:
Here you can see the average performance if you switch to 100% cash instead of buy & hold in a 60/40 portfolio (60% equities, 40% bonds).
- After 3 months in cash you have an underperformance probability of 74% and on average an underperformance of 4.1%
- After 6 months it is 71% and an average underperformance of 7.4%
- After 12 months, the probability is 87% and an average underperformance of 13.3%
Here is another interesting study:
- The average return of a buy & hold investor over the last ~20 years has been 9.8%.
- If you miss the 10 best days, the return is almost halved to 5.6%
- If you miss the best 30 days, you are almost at the zero line with a return of 0.8% and with 40 days you have even achieved a negative return over 20 years
- The tragic thing is that the best days usually follow directly after the worst days - 7 of the 10 best days occurred within 2 weeks of the 10 worst days.
- Even more dramatic is the following finding: 6 of the 7 best days occurred exactly on the day after one of the 10 worst days
Is diversification the solution?
Diversification is generally regarded as risk reduction. I therefore took a look at all the sample portfolios on extraetf and sorted them according to the YTD return in 2025.
At the top was a portfolio consisting of 60% equities, 20% bonds, 10% commodities and 10% real estate.
This diversified portfolio has only lost ~1% in 2025 so far.
Compared to the NASDAQ 100 with over 20% price losses, this is of course a much better investment, isn't it?
Let's take a look at the long-term comparison:
- The NASDAQ has made a long-term return of 16% p.a. over the last 10 years despite the current price drop of over 20%
- Over 30 years it is ~12%
What does the diversified sample portfolio look like?
- Here you can see a return of ~3% over the last 5 years and a return of ~4% p.a. since 2013.
What lessons can I draw from this?
- Buy & hold beats market timing - Yes, there are investors and short-term traders who can beat buy & hold in the long term. I know for myself that I can't and therefore trust in long-term results that buy & hold is the best way for private investors
- Asset diversification usually comes at the expense of absolute returns - If I already have millions or billions, capital preservation is more important than maximum return. I am young, still have many decades to go and need to build up my capital first. That's why I focus almost 100% on the historically most successful asset: direct investments in successful companies via shares
How do you see the current market situation? Have people learned from history or will Donald Trump make the same mistakes that were made before him?
I share some more information in the YouTube video, so take a look if you are interested in the topic :)
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