When Markets Reset
A brief history of moments most investors never believed could happen—until they did. Resets are rarely “unforeseeable.” More often, they’re the result of risks that were visible, uncomfortable, and ignored.
A Century of Resets at a Glance
These are not the only resets—just the most instructive examples of how fast confidence can change.
A Quiet Question Worth Asking
Resets are rarely “unforeseeable.” The trigger varies, but the setup often rhymes. The practical issue isn’t predicting a date—it’s ensuring your plan doesn’t rely on a reset never happening.
Where we are now
In many cycles, risk builds quietly during long gains. Confidence becomes certainty, stretched pricing gets explained away, and the cost of leverage is minimized—until conditions change quickly.
Then vs. Now
- “New era” narratives
- Easy money makes risk feel small
- Valuations justified by stories
- Caution feels unnecessary
- “This time is different” logic
- Policy support expected to persist
- Stretched pricing treated as baseline
- Plans assume a smoother start
Five Market Resets Most People Didn’t Believe Were Possible
In each case, the “obvious reasons” were visible in advance—yet widely minimized until after losses began.
1) The Crash of 1929
- Speculative excess and margin leverage
- Prices outrunning underlying fundamentals
- Concentrated optimism across the public
- Prosperity would continue indefinitely
- Risk had been “tamed” by modern finance
- Any decline would be brief and buyable
- Leverage makes small cracks become collapses
- Sentiment can turn faster than headlines
- Liquidity disappears precisely when needed
2) The 1973–1974 Collapse
- Oil shock and supply-side disruption
- Rising inflation and rising rates
- Growth slowing while costs accelerated
- Inflation would quickly fade
- Markets could absorb higher costs easily
- “Balanced” portfolios were automatically safe
- Inflation changes the meaning of “recovery”
- Rates can reset valuations quickly
- Purchasing power is a hidden loss
3) The Dot-Com Bust (2000–2002)
- Valuations detached from earnings/cash flow
- Speculation in unprofitable growth stories
- Momentum crowds replacing analysis
- Old valuation rules no longer applied
- “Eyeballs” and hype were enough
- Indexing meant you couldn’t be wrong
- Great businesses can be terrible investments at the wrong price
- When narratives break, the exit gets crowded
- Recoveries can take years, not months
4) The Global Financial Crisis (2008–2009)
- Leverage across housing and banking
- Complex products masking real risk
- System exposure tied to the same assumption
- Housing couldn’t fall nationally
- Institutions were “safe” by definition
- Liquidity would always be available
- Correlation rises during stress
- When leverage unwinds, selling accelerates
- Risk is often hidden in “normal times”
5) The COVID Shock (2020)
- Global shutdown and demand shock
- Supply-chain paralysis
- Uncertainty hitting earnings instantly
- Systems were resilient to sudden stop events
- Risk could be diversified away
- Markets would “look through” everything
- Speed is its own form of danger
- Portfolio “plans” fail under stress without rules
- Liquidity and behavior matter as much as return
The Pattern That Keeps Repeating
What typically precedes a reset
- Long gains → confidence hardens into certainty
- Valuation warnings dismissed as “outdated”
- Debt/leverage quietly expands risk
- “Everyone knows” the new story is true
- Minor declines get labeled as buying opportunities
What the reset changes
- Prices re-anchor (often faster than expected)
- Correlation rises when you need diversification most
- Cash flow needs collide with drawdowns
- Investors discover their true risk tolerance
- Recovery time becomes the hidden cost
Turn History into a Personal Plan
You don’t have to predict the next trigger to prepare for a reset. The practical question is simple: What would a bad first five years do to your income plan?