I hope this doesn't surprise you: Another stock market crash is on its way.

That's the bad news. The good news is that the crash probably isn't right around the corner. Many financial prognosticators on TV will offer opinions on when the next big one is due, but I don't feel I'm shortchanging you with my opinion:

I don't know when it will happen.

This is the best, most honest answer anyone can offer, because even though the arrow usually points up over the long term, the stock market's short-term movements are extremely unpredictable.

There are many things we can learn by looking at past crashes. At about.com, I found Dustin Woodard's assessment of the United States' 10 worst stock market crashes:



DJIA Fell ...




57 to 31




75 to 39




110 to 66




120 to 64




381 to 199




294 to 41




194 to 99




156 to 93




1,052 to 578




11,793 to 7,286


What to learn from this
How can this information help you? Here are a few key lessons:

  • Regrettably, some of the crashes followed one another closely. For example, the Dow sat near 400 in 1929, but it remained below 100 by 1942. One could argue that in this period, there was one long crash instead of several small ones.
  • A big question the data raises is this: What caused the carnage? Reasons have varied over time. The Depression years included several crashes, and there was one during and one soon after World War I as well.

    Other factors tied to crashes include inflation, speculative trading, insufficient regulation of the market, automated trading, and trade and budget deficits.

    Sometimes, crashes occur without clear reasons. The 1987 crash, which featured a one-day 23% drop, for example, has many alleged causes, but no single, definitive trigger I could find.
  • A last thing to notice is that there have always been recoveries, and the market trends upward in the long run. Sometimes, we have to wait a long time for a full recovery. This is especially true for those who invested in market darlings that soared, often unreasonably, before crashes happened.

Motorola (NYSE:MOT), for example, leapt from roughly the split-adjusted teens to the high $40s between 1998 and 2000, but it was recently trading below 1999 levels. Intel (NASDAQ:INTC) charged above $60 in early 2000 but was recently still trading for less than half of that figure. Amazon.com (NASDAQ:AMZN) shares have only recently retouched 1999 levels.

What to do about it
Let this information shape your investing, Let it remind you that anything can happen in the coming five or even 10 years. And remember that you should have only your long-term money in stocks. You don't want to lose that sum you've socked away for a down payment on a house or for college tuition. Here are a few takeaways:

  • If you're frightened of any kind of significant drop, you might want to place stop-loss orders for your holdings with your broker. (Learn more about brokerages in our Broker Center.) You can, for example, specify that if Stock ABC falls 10%, you want it sold ASAP. This can protect you, but it can also evict you from some great performers that slump temporarily. (Read Jim Mueller on the dangers of stop-loss orders.)
  • Look for opportunities in crashes. If you have some cash on the side, or can generate some, you might be able to take advantage of some first-rate bargains -- although, again, it might be a few years until you're rewarded.

    For example, on Black Monday in 1987, Target (NYSE:TGT) stock fell a whopping 33%, from about $45 to $30 (which in today's split-adjusted terms would be a drop from $2.79 to $1.79). It gained back that ground within a year, and it had more than doubled within two years. Recently, it was trading around $66 per share -- a 30-bagger for 1987 investors. Look at Yahoo!'s chart, and you'll see that many investors who bought after the Internet bubble burst have done rather well. Of course, some stocks, such as 3M, kept rising throughout the bubble period, seemingly oblivious to it.
  • Consider investing in stable growers that pay significant dividends, which you'll receive no matter what the market is doing. PepsiCo's chart shows the value of hanging on to steady growers. Over the past decade, through market ups and downs, PepsiCo's dividend per share has grown by a compound average annual rate of 14% over the past decade. Some other dividend-paying companies worth a closer look are Travelers (NYSE:TRV), Harley-Davidson (NYSE:HOG), and Mattel (NYSE:MAT), recently yielding 2.5%, 3.4%, and 3.8%, respectively.

If you're interested in adding some (or many!) significant dividend payers to your portfolio, I invite you to test-drive, for free, our Motley Fool Income Investor newsletter service. Its recommendations have been beating the S&P 500 by eight percentage points on average, and last time I checked, more than 20 recommendations sported dividend yields of at least 5%. A free trial (with no obligation to subscribe) will give you full access to every past issue.

Here's to doing well through the coming crash!

This article was originally published on March 21, 2007. It has been updated.

Longtime contributor Selena Maranjian owns shares of 3M. For more about Selena, view her bio and her profile.3M and Intel are Motley Fool Inside Value picks. Amazon.com is a Stock Advisor recommendation. Try any of our investing services free for 30 days. The Motley Fool is Fools writing for Fools.