Part 8 · In practice: your own routine for reading the economy · Lesson 41
Learning from crisis history: 2008, 2020 and 2022
The 2008 financial crisis, the 2020 COVID crash and the 2022 tightening. These three big declines differed in cause, policy response and speed of recovery. Let's compare them side by side with numbers.
QToday's question
In 2008, when KOSPI was cut in half, how long did it take to get back to its original level?
KOSPI fell from 2,064.85 on Oct 31, 2007 to 938.75 on Oct 24, 2008. That is a 54.5% decline, literally cut in half. It climbed back above its original level on Jan 3, 2011. But in the 2020 COVID crash, it recovered four and a half months from the bottom, and the 2022 decline took nearly three years to recover. Why are these so different when they are all 'crises'? Let's compare the three crises step by step.
MAPLearning map for this lesson
We build it up in three steps. At the end of each step, a 'Quick check' lets you test your understanding before moving on.
In Lesson 5 you learned about recessions, in Lesson 10 about phases when prices and growth diverge, and in Lesson 13 about how central banks steer the economy with interest rates. In Lesson 34 you saw that stock prices bottom before the economy, in Lesson 38 the power of liquidity, where asset prices rise as money is released, and in Lesson 39 how fear shows up in numbers. This lesson is the time to take all these tools out and hold them up against three real crises.
- STEP 1 · Basic conceptsThe size of the decline and the time to recover
You'll be able to calculate and , and explain why a price must rise by more than it fell to get back to the starting amount.
- STEP 2 · Understanding the principleThe causes and remedies of the three crises
You'll be able to distinguish the causes of the 2008, 2020 and 2022 crises and the responses of central banks and governments, and explain how the remedies changed the speed of recovery.
- STEP 3 · Real-world applicationOverlaying the crisis paths
You'll be able to overlay the stock price paths of the three crises from their peaks, and organize a checklist of what to check when the next crisis arrives.
STEP 1The size of the decline and the time to recover
This is the second lesson of Part 8. Before applying the indicators and principles you've learned so far to three real crises, let's prepare two rulers for measuring a crisis: how far it fell, and how long it took to come back.
An easy analogy · A hike across a valley
Picture a trail that goes down from a mountain summit into a valley and then climbs back to the same height on the other side. How deep the valley is (the drawdown) and how long it takes to climb back up to the summit's height (the recovery time) set how tough the journey is. And oddly, the way up always feels longer than the way down. In the numbers, it really is longer.
Maximum drawdown: from peak to bottom
The percentage a stock price falls from its previous peak to its lowest point is called the . It is also written as MDD (Maximum Drawdown). The calculation is simple: (bottom ÷ peak − 1) × 100. KOSPI's peak was the Oct 31, 2007 close of 2,064.85 and its bottom was 938.75 on Oct 24, 2008, so 938.75 ÷ 2,064.85 − 1 = −54.5%. A decline of more than 20% from a peak is commonly called a , and the three crises covered in this lesson all crossed that line.
You have to rise by more than you fell
If KRW 1 million falls 50%, it becomes KRW 500,000. For that KRW 500,000 to become KRW 1 million again, it has to rise not 50% but 100%, because the starting point has shrunk. The required gain is calculated as 1 ÷ (1 − drawdown) − 1. The larger the drawdown, the faster the required gain grows. A 20% decline needs a 25% gain, a 33% decline needs 50%, and a 56.8% decline needs a 131% gain. Try moving it yourself in the figure below.
The gain needed to make up a loss
Tap the drawdowns of real crises.
Formula: required gain = 1 ÷ (1 − drawdown) − 1. Actual drawdowns are calculated by Robin Invest from daily closes of the S&P 500 (Yahoo Finance ^GSPC) and KOSPI (Naver Finance). You can also do break-even calculations in the Break-even Calculator.
Recovery time: from the bottom back to the peak
The second ruler is time. In this lesson, we'll call the time it takes a stock price to get back above its previous peak after hitting bottom the . There is a reason to measure it separately from the time from peak to bottom. A decline can end in a few weeks, but a recovery can take years. The truly hard time for investors is usually after the bottom, because there is often a long stretch in which the worst moment has passed but the original amount is still far away.
Quick checkA stock price fell 40% from its peak. How much does it have to rise to get back to its original level?
STEP 2The causes and remedies of the three crises
Now let's pick up the rulers and measure the three crises. By the numbers alone they look like similar 'crashes', but why they fell and who stopped them, and how, were different. That difference split their speed of recovery.
The nature of the crisis sets the speed of recovery
A crisis where the system broke (2008) took a long time to fix; a crisis where money was released quickly in response to an external shock (2020) recovered fast; and a decline in which policy deliberately tightened the money supply to bring down inflation (2022) had to wait until inflation was under control.
See it in a diagram: the three crises at a glance
Choose a crisis and its cause, market shock, policy response and recovery are laid out. The bars below show the number of months from peak to bottom (gray) and from bottom to recovery (green). Compare the bar lengths.
Sources: S&P 500 Yahoo Finance ^GSPC and KOSPI Naver Finance daily closes (peak, bottom and recovery dates calculated by Robin Invest); Fed target rate FRED DFEDTAR and DFEDTARU; Bank of Korea policy rate ECOS 722Y001; Korea-US currency swap Fed press release (Mar 19, 2020), Yonhap News (Mar 19, 2020) and Hankyung Economic Glossary (USD 30 billion in 2008); Fed unlimited quantitative easing Fed statement (Mar 23, 2020, as reported by UPI and MarketWatch). Checked 2026-10-06.
2008: a crisis where the financial system broke down
The roots of the 2008 crisis were in the US housing market. Amid the belief that home prices would keep rising, mortgages went even to people with little ability to repay (), and securities bundling these loans spread to financial firms around the world. When home prices turned down, the bad loans were exposed all at once, and when the major investment bank Lehman Brothers went bankrupt in September 2008, financial firms stopped trusting each other and money stopped flowing. The seen in Lesson 18 happened on the scale of the entire financial system. Both the earnings dial and the multiple dial broke at the same time, and it took several years to clear out the debts of broken banks and households.
The remedies were big and fast, but the scars were deep. The Fed cut its target rate from 4.25% at the end of 2007 to 0–0.25% in December 2008 and began quantitative easing, buying Treasuries and mortgage-backed securities (Lesson 38). The Bank of Korea also cut its policy rate from 5.25% in August 2008 to 2.00% in February 2009, and in October 2008 it signed a USD 30 billion with the US to address the dollar shortage. Even so, the S&P 500 only hit bottom in March 2009 and did not exceed its previous peak until March 2013.
2020: a stone thrown at a healthy economy
The cause in 2020 came from outside the financial system. As COVID-19 spread, factories and stores closed all at once, and the seen in Lesson 39 soared to record levels. The S&P 500 fell 33.9% from its Feb 19 peak to Mar 23, in just over a month. In terms of speed of decline, it ranks among the fastest in history.
The response was even faster. The Fed cut rates to 0–0.25% on Mar 15, and on Mar 19 it signed currency swaps with the central banks of nine countries, including Korea. Korea's was USD 60 billion, and the next day KOSPI rose 7.44%. On Mar 23, the Fed announced unlimited quantitative easing, saying it would buy Treasuries and mortgage-backed securities 'as needed'. That very day was the S&P 500's bottom. The Bank of Korea also cut its policy rate from 1.25% to 0.75% in March and 0.50% in May, and governments around the world poured out massive fiscal support. A situation in which the market believes 'the central bank will back us to the end' is sometimes called a . KOSPI recovered its previous peak on Aug 4, four and a half months after its Mar 19 bottom, and the S&P 500 on Aug 18.
2022: a decline where the remedy was the cause
2022 was the opposite in nature. As you saw in Lessons 7 and 8, when inflation rose at its fastest pace in 40 years, the Fed raised rates from 0–0.25% to 4.25–4.50% by the end of that year, and reached 5.25–5.50% in July 2023. The Bank of Korea also raised its policy rate from 1.00% to 3.25% by the end of 2022. The financial system didn't collapse and the economy didn't stop, but as you learned in Lesson 17, the discount rate rose and the multiple dial shrank sharply.
This time there was no rescuer. Since the cause of the stock decline was precisely the central bank's tightening, it was hard to expect help from policy until there were signs inflation was coming under control. The S&P 500 exceeded its peak only in January 2024, one year and three months after its October 2022 bottom. KOSPI took longer. It exceeded its July 2021 peak of 3,305.21 only in September 2025, about three years from the bottom. It was the result of a weak won and foreign selling (Lesson 27) combined with a chip-cycle slowdown (Lesson 31).
Common misconceptions
- "In a crisis, just wait until the economic news gets better?"
- As seen in Lesson 34, stock prices bottom before the economy. The S&P 500's bottom on Mar 23, 2020 came just before unemployment claims poured in, and the March 2009 bottom came when the unemployment rate was still rising. By the time the news had improved, stocks had often already risen a lot.
- "As soon as the central bank releases money, it's the bottom?"
- In 2008, even after December 2008, when the Fed cut rates to nearly zero, stocks kept falling for another three months. In a broken financial system, money didn't circulate well even when released. The effect of the remedy depended on the nature of the crisis.
- "Once cut in half, it never comes back?"
- In all three crises, the index eventually surpassed its peak. Individual stocks and sectors are different, though. An index returns by dropping failed companies and adding new leaders, but the one stock you hold may never come back.
Quick checkThe 2020 decline was the fastest, and the recovery was also the fastest. What is the main reason?
STEP 3Overlaying the crisis paths
Finally, let's put the three crises on the same starting line. Set each crisis's previous peak at 100 and overlay where the index went over the following months, and the 'depth' and 'length' are clear at a glance.
Paths of the three crises with the previous peak set to 100 (48 months from the month of the peak, month-end closes)
Sources: S&P 500 Yahoo Finance ^GSPC, KOSPI Naver Finance month-end closes. The base (100) is the daily-close peak (S&P 500: 2007.10.9 1,565.15, 2020.2.19 3,386.15, 2022.1.3 4,796.56 / KOSPI: 2007.10.31 2,064.85, 2020.1.22 2,267.25, 2021.7.6 3,305.21). Because these are month-end closes, they can look less deep than intraday or daily lows. Values above 160 are cut off at the top. Calculated by Robin Invest, checked 2026-10-06.
In the S&P 500, the shapes of the three crises are clearly different. 2008 (red) fell for more than a year and then climbed back very slowly, staying near 80 even after 48 months. 2020 (blue) is a V shape. It plunged in a month and was back above 100 in six months. 2022 (orange) slid gradually over a year and returned to where it started after two years.
Switch to KOSPI. The 2022 path stays below 100 much longer than the S&P 500's. Even with the same tightening shock, Korea's own dials of export conditions, the exchange rate and foreign investor flows slowed the recovery (Lessons 26 and 27). Even when the world experiences the size of a crisis together, the speed of recovery can differ by country.
What the three crises had in common
The shapes differed, but there were also common points. First, the bottom came when fear was greatest. The VIX hit its highs of 80.86 on Nov 20, 2008 and 82.69 on Mar 16, 2020, and the stock bottoms came around then or a few weeks later. Second, there was usually a strong policy response near the bottom. Third, bad economic news continued for a while even after the bottom. The 'order of bottoms' from Lesson 34 repeated in every crisis.
For stocks: four questions to ask in the next crisis
| Question | Where to check | Why does it matter? |
|---|---|---|
| Is the cause inside or outside the financial system? | Bank and credit news, the banking sector from Lesson 18 | Crises where the system broke (2008) had a long recovery. |
| Is the central bank in a position to help? | Inflation level (Lesson 8), Macro Map · Current Phase | When inflation is high, it's hard to cut rates (2022). |
| Has fear reached an extreme? | VIX and margin loan balance (Lesson 39), foreign investor flows | Bottoms were usually near the peak of fear. |
| How large a drawdown can I withstand? | Break-even Calculator, my asset allocation | If you can't withstand −50%, you can't be there for the recovery. |
The last question is the most important. In all three crises the index eventually came back, but investors who sold in fear at the bottom or were forced to sell because of debt didn't share in that recovery (forced liquidation in Lesson 39). A structure that can withstand a crisis protects your investing longer than the ability to call a crisis. How to build that structure is the topic of the next lesson.
This is not always the case. Three crises are just three examples, and the next crisis may have a different cause and a different path. Just because an index recovered doesn't guarantee that individual stocks or sectors will, and there are cases like the Japanese stock market after the 1990s, where recovering the peak took decades (Lesson 10). The content of this lesson is educational and is not investment advice.
Quick checkIn 2022, KOSPI recovered much later than the S&P 500. What reasons can you find in this lesson and earlier ones?
✓What we learned today
- The largest fall from peak to bottom is called the maximum drawdown. In the 2008 crisis, the S&P 500 fell 56.8% and KOSPI 54.5%; in 2020 they fell 33.9% and 35.7%, respectively; and in the 2022 bear market they fell 25.4% and 34.8%.
- To make up a loss, you must rise by more than the percent you fell. After a 50% fall, you need 100%, and after a 56.8% fall, you need 131% to get back to where you started.
- The speed of recovery differed depending on the cause and remedy of the crisis. Based on the S&P 500, 2008, when the financial system collapsed, took 4 years from the bottom; 2020, when money was released massively in response to an external shock, took 5 months; and 2022, when rates were raised to bring down inflation, took 1 year and 3 months.
- In all three crises, stock bottoms came when there was the most bad news, and right after a policy response. Representative examples are the Korea-US currency swap on Mar 19, 2020 and the Fed's unlimited quantitative easing on Mar 23.
- Past crises don't tell you exactly what the next crisis will look like. Instead they leave you questions to check: 'What is the cause, has a remedy arrived, and how large a drawdown can I withstand?'
We've confirmed that it is hard to call a crisis in advance. So where should you put your economics knowledge to use? In the next lesson, you'll learn how to prepare diversification, regular-installment investing, rebalancing and a 'scenario response table' in advance so you can hold on even if your forecast is wrong.
Quiz5-question quiz
Pick an answer and it's graded right away with an explanation.
Q1. A stock price fell from a peak of KRW 10,000 to KRW 6,000, then rose back to KRW 7,500. What is the maximum drawdown?
The maximum drawdown is the percentage from the peak to the lowest point. 6,000 ÷ 10,000 − 1 = −40%. The later rise to KRW 7,500 doesn't affect the drawdown calculation.
Q2. A stock price fell 50%. How much does it have to rise to get back to its original price?
If 100 becomes 50, for 50 to become 100 it has to double, that is, rise 100%. Required gain = 1 ÷ (1 − 0.5) − 1 = 100%.
Q3. Of the three crises, which took the longest for the S&P 500 to recover (bottom → previous peak), and which reason is correct?
2008 took about 4 years from the bottom (Mar 2009) to recovering the peak (Mar 2013). It took a long time to clear out the debts of banks and households.
Q4. Which policy came out on the same day as the S&P 500's bottom in March 2020 (Mar 23)?
On Mar 23, 2020, the Fed announced it would buy Treasuries and mortgage-backed securities 'as needed'. Four days earlier, on Mar 19, the USD 60 billion Korea-US currency swap had also been signed.
Q5. Why didn't central banks immediately release money in the 2022 bear market, as they did in 2008 and 2020?
In 2022, central banks deliberately raised rates to bring down the highest inflation in 40 years. Since the remedy was itself the cause of the decline, it was hard to release money until inflation was under control.
NextTerms · Next lesson · Related tools
The percentage a price falls from its previous peak to its lowest point. Calculated as (bottom ÷ peak − 1). In the 2008 crisis, KOSPI fell 54.5% and the S&P 500 fell 56.8%.
Recovery timeRecovery timeThis is how long it took for stock prices to climb back above their previous peak after hitting bottom. After the 2008 crisis the S&P 500 took about 4 years; in 2020 it took about 5 months.
Subprime mortgageSubprime mortgageUS home loans made to borrowers with weak credit. When home prices fell in 2007–2008, many of them went bad, which became the starting point of the global financial crisis.
Currency swap lineCurrency swap lineAn agreement under which two central banks swap each other's currencies on set terms when needed. Korea signed swap lines with the US Fed worth $30 billion in October 2008 and $60 billion on Mar 19, 2020 to deal with dollar shortages.
Policy putPolicy put (Fed put)The market's belief that when markets are shaken badly, the central bank or government will step in with rate cuts and liquidity. The name comes from a put option that protects against losses; it is hard to rely on when inflation is high.
Bear marketBear marketA falling market in which stock prices drop 20% or more from their peak is commonly called this.
RecessionRecessionA state in which economic activity such as output, income and jobs visibly shrinks for a considerable period. It is often described as 'two consecutive quarters of falling real GDP', but the official declaration takes multiple indicators into account.
VIXVolatility index, fear gaugeThe expected volatility over the next 30 days, calculated from S&P 500 option prices. It rises as investors become more anxious.
Bank runBank runA phenomenon in which fear spreads that a bank is in danger and depositors rush to withdraw their money all at once. In March 2023, about $42 billion of deposits left US bank SVB in a single day before it was shut down.
StagflationStagflationA situation in which economic stagnation and rising prices (inflation) occur together.
This is educational material and not investment solicitation. There is no guarantee that past relationships will repeat in the future.