Big market drops feel scary. Many people sell in panic. They lock in losses and miss the recovery. Felix Prehn from Goat Academy teaches a calmer way to view crashes. His approach is built on one idea: most crashes follow repeat patterns, and those patterns can guide better choices.
The 4 recovery shapes most crashes follow
A market crash is often defined as a drop of 20% or more from a recent high. After that drop, markets usually recover in one of four shapes:
- V-shape: A fast drop and a fast rebound. This is what people hope for. But it is not the most common outcome.
- U-shape: A drop, then a long “down period,” then recovery. This can last months. Many investors give up during this stage.
- W-shape: A drop, a bounce, then another drop. This is also called a double dip. It can trick people into buying too early and then selling again.
- L-shape: A drop with a very slow recovery that can take years. This happens, but it is rare.
Volatility is another word readers may see during crashes. It means the market is moving up and down quickly. High volatility can make people react too fast.
Why “buy the dip” can destroy wealth
Many people hear: “Just buy the dip.” The problem is that “the dip” is not one day. In many crashes, the market stays down for a long time. If someone buys all at once and the market falls again, fear gets worse. That fear often leads to selling at the wrong time.
Felix Prehn’s view is simple: instead of trying to guess the exact bottom, it is better to plan for a longer recovery and avoid emotional moves.
A practical buying zone: 20% to 35% down
History shows a strong idea: the best risk-balanced results often come from buying when the market is down roughly 20% to 35% from its peak. This avoids the impossible task of “calling the bottom.”
A helpful method is to scale in, which means buying in steps instead of one big purchase. For example:
- Invest part of the money when the market is down about 20%.
- Invest more if it drops closer to 30%.
- Add the rest near 35%.
- Keeping a small amount back can also help people stay calm if prices fall further.
Which parts of the market often recover first
Different sectors (parts of the market, like tech or banks) can recover at different times.
- Early bounce: Tech and consumer brands people “want” (not “need”) often rebound fast.
- Next phase: Financial and industrial companies often improve as the real economy steadies.
- Broad recovery: More sectors join in and the recovery becomes widespread.
The key mindset that protects retirement
Crashes are not a rare accident. They are part of how markets work. The most important lesson is patience. Selling in panic can turn a temporary drop into permanent damage.
For more background on Felix Prehn and his work, readers can view the about page here: Felix Prehn Goat Academy