#46 - Stock Market Crash Lessons

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This week brought a shift in the future of air travel, a new quantum computing chip, a new James Bond era, and why it is vital to study our past stock market crashes.

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Market Recap

• Archer Aviation Receives FAA Go Ahead for Pilot Training

  • Archer ($ACHR) an electric vertical takeoff and landing (eVTOL) aircraft company, is developing Midnight, an air taxi designed for urban mobility. Their goal is to launch commercial operations in the near future.

  • The company received Part 141 certification from the FAA, allowing them to establish their own pilot training academy to prepare pilots for Midnight's commercial deployment. Archer now holds three of the four necessary FAA certifications for launching air taxi operations, with the final Part 142 certification (simulator-based training) still in progress.

  • Archer and Anduril in December also formed a partnership to develop a hybrid-propulsion vertical takeoff and landing (VTOL) aircraft for defense applications. This aircraft is intended to meet military requirements from the U.S. Department of Defense.

• Microsoft’s Quantum Leap Into A New State of Matter

  • Microsoft has developed a quantum chip called “Majorana 1,” using a new state of matter called a topological superconductor, which could revolutionize computing. It is a unique phase of matter that doesn’t fit into traditional states like solid, liquid, or gas.

  • While still in the research phase, this advancement could lead to more powerful quantum computers impacting fields like drug discovery, cybersecurity, and data encryption.

  • Microsoft, Google, and IBM are all competing in quantum computing, with Google recently announcing its own breakthrough in December with the “Willow” chip.

• Amazon Gains Creative Control Over James Bond Franchise

  • After more than 60 years under the stewardship of the Broccoli family, Amazon MGM Studios has assumed creative control of the James Bond franchise. This opens possibilities for more potential spin-offs and series, as Amazon explores ways to rejuvenate and expand the 007 universe.

  • In 2022, Amazon acquired MGM Studios for $8.45 billion, gaining co-ownership of the James Bond franchise. The James Bond series has generated over $7 billion in global box office revenue since its inception.

  • With Amazon now being in control of the future of the brand the big question is who will become the next James Bond? Could we see a billionaire villain?  Maybe one with a bald head, a space obsession, and a desire to dominate the world from a superyacht?

Freedom Fund Portfolio

• Friday Freedom Fund Purchase:

  • 6 shares of $APLE - Apple Hospitality REIT

  • 2 shares of $O - Realty Income REIT

  • As REITs continue to get beaten down going into 2025 and growth stocks continue to climb I may continue to add to my REIT positions in the first few months of the year. Currently between $O and $APLE I am averaging a few cents shy of $20 a month in dividend payouts from the companies.

  • As I expect REITs to rebound at some point in the next 2-3 years my goal is to continue to build up some of these consistent monthly dividend payers. While not immune to downturns, high-quality well-managed REITs like $O and $APLE have strong balance sheets and can offer stability, income, and long-term appreciation making them a solid hedge in a market crash.

• Portfolio Earnings:

  • $LNG - Cheniere Energy - Q4 2024 Earning

    • 2024 revenue fell 23% YoY to $15.7B (from $20.4B in 2023), while net income dropped 67% to $3.3B (from $9.9B). Lower global gas prices and a shift to long-term contracts impacted margins.

    • LNG exports hit a record 646 cargoes, and Cheniere projects $6.5B–$7.0B EBITDA for 2025. The upcoming Corpus Christi Stage 3 expansion is expected to boost production and revenue.

    • In December, $LNG produced its first liquefied natural gas from the Corpus Christi Stage 3 Project, with substantial completion expected by the end of the first quarter of 2025.

Freedom Fund Background: I created the Freedom Fund as a public brokerage account back in October of 2022 to share that anyone with a social security # and a bank account can begin their investing journey by investing a couple hundred dollars a week. Every week and month I post on X (@GrahamInvesting) public updates about the purchases, exits, dividends, and growth of the fund if you want to follow in real time. The biggest obstacle people have to investing is just getting started so I decided to start a new account at $0 to start from nothing with you.

Top 5 Market Crashes of All Time

If you have been paying attention to the stock market over the past few years two things you will notice is that since March of 2020 the S&P 500 is up over 80% and Dow Jones Industrial Average is up over 50%. Your portfolio is most likely at an all time high its ever been if you have been investing for 5+ years. Generally other than a down 2022 everything has been sunshine and rainbows for stock prices and real estate values. Today I want to remind you that the market will crash at some point in the future. It may happen this year, next year, or in 5 years. A recap of the top 5 market crashes in the U.S. market history, what happened, and how you should prepare yourself for these events in the future:

1. The Wall Street Crash of 1929 (The Great Depression)

In October of 1929 after a decade of the roaring 20’s the Dow Jones Industrial Average (DJIA) dropped nearly 89% from its peak to an all time low in June of 1932. Prior to the crash people were borrowing money from banks to invest like crazy because the market kept going up and up. Due to a massive overproduction in manufacturing which lead to companies not being as profitable as their share price showed and weak bank regulations this lead to huge panic selling by everyone in the market. Everyone realized that prices were too high and in many cases they could not even get their money out of the banks.

This historical crash led to the Great Depression, where millions lost their jobs and banks failed because they had also gambled on bad loans. The greatest lesson from the 1929 crash proved that overleveraging and speculation can amplify losses to the extreme. This showed everyone the importance of strong banking regulations to prevent mass failures. Economic bubbles eventually burst when fundamentals don’t support valuations. The depression caused the U.S. to pull back from major international involvement in the 1930s and lead to unemployment levels that we could not even comprehend today. It is commonly argued that World War II provided the necessary stimulus that brought the American economy out of the depression and winning the war set the foundation for the global power dynamics and the economy we have today. We had the strongest military, the global currency reserve, and people were motivated to build a life and country far beyond what we had prior to the war.

2. Black Monday – 1987

In October of 1987 the Dow Jones dropped 22.6% in one single day the largest single day hit in history. The crash was caused by a mix of early day computerized program trading and all the systems sold stocks rapidly. This lead to investor panic and economic uncertainty. Many investors had been using portfolio insurance a strategy meant to protect against losses but it backfired when automated selling triggered a domino effect. Unlike the Great Depression, this crash didn’t lead to a long recession and markets recovered within two years. The event showed how computer-driven trading can increase market volatility and led to new regulations to prevent future crashes.

3. The Dot-Com Bubble Burst - 2000-2002

From March 2000 - October 2002 the NASDAQ lost 78% of its value from its peak. This crash occurred from investors piling into unproven internet companies that had no profit. The companies stocks soared during this time and this large wave of tech startup investing lead to the eventual downfall of realization that they were widely overvalued. Once the selling began it lead to a large panic sell-off by investors and took the entire market with it. Many dot-com companies went bankrupt, but companies like Amazon and Google survived and thrived. The crash taught investors that hype isn’t enough, companies need real profits to justify high stock prices.

I think there is a lot of similarities between the dot-com bubble burst and today’s AI tech waves that have been carrying the market with companies like Nvidia, Palantir, etc. There are a lot of other companies today that claim that they are an AI company however to me a chat bot is not AI. It is just an application for AI. The truth is at some point all these AI hype stocks will crash and only the survivors will thrive. That is why it is important when catching industry hype waves to ensure that the companies have solid revenue growth, profitability, and lots of cash on hand in comparison to their debt ratios.

4. The 2008 Financial Crisis (Great Recession)

From September 2008 to March 2009 the S&P 500 dropped 57% from its peak. The 2008 Financial Crisis happened because banks kept giving out too many risky subprime mortgage home loans and the loans were bundled into complex investments that investors didn’t fully understand. When homeowners started defaulting on their mortgages the whole system began to collapse. Banks like Lehman Brothers failed, and this led to a global recession, massive job losses, and government bailouts to save the financial system. The crisis taught us that too much debt, lack of regulation, and risky banking practices can bring down the entire economy.

5. COVID-19 Market Crash - 2020

In February through March of 2020 the S&P 500 dropped 34% the fastest crash in history. The pandemic fear and uncertainty caused investors to panic. The government shut down economies, businesses closed, millions lost jobs, and supply chains collapsed. However due to massive government stimulus, low interest rates, and vaccine development the markets recovered quickly, reaching new highs by 2021. While the pandemic brought many challenges to peoples lives it also lead to one of the greatest buying opportunities in recent history.

What Can We Learn From Our Past?

Stock market crashes typically follow periods of excessive leverage, easy credit, and bullish market speculation. Every crash has been followed by a recovery, often leading to new highs. Panic selling locks in losses and will stunt long-term growth compared to staying invested and adding more to your investments. Over time from these market crashes our economy and government gains more financial oversight with regulations and policy that can prevent or mitigate future crashes and their impacts in the future.

The best way to weather the storm during a market crash is to not fall into the fear of panic selling regardless of how painful the hits are to your portfolio. Stay the course and keep investing like business as usual and you will reap the rewards when things change for the positive. Also, it is never a bad idea to keep some cash on the sidelines and identify companies that are widely undervalued during market crashes.

The next crash is right around the corner (especially with how the AI hype has been driving market up recently). Accept the fact that another one will happen again. Ask yourself what will your mental and financial game plan for your assets be when it hits? Will you let the crash destroy you? Or will you set yourself up for success with your plan going into it?

The purpose of this newsletter is to encourage you and our other 85 Gazette subscribers to start and stay consistent with your personal, professional, and financial journey.

Thanks for investing your time reading this.

-Graham (@GrahamInvesting)

Disclaimer: Graham’s Gazette provides information and resources related to investing, financial topics, and personal growth for educational and entertainment purposes only. The content presented is not intended to be construed as financial advice. Readers are encouraged to conduct their own research and consult with qualified professionals before making any financial decisions. Graham’s Gazette and its creators do not assume any responsibility for the accuracy or completeness of the information provided nor do they guarantee any specific results from such use of information.