April 5, 2025
Is This the Crash of 2025?
Dear Subscriber,
Editor’s note: A sea of red washed over Wall Street after President Trump declared a global trade war midweek.
Your editors have been helping you prepare and continue to walk you through this rough market reaction in real time.
But this week’s collapse calls for some bigger guns … who have seen this all before and helped investors come out wiser and, in many cases, wealthier.
I want to share something with you from the men behind Weiss Ratings … Irving Weiss and his son — and our founder — Dr. Martin Weiss.
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When markets crash, nearly all investors are caught off guard.
They struggle to understand why it’s happening.
They don’t know what to do.
And even if they’re aware, they’re often too shell-shocked to take protective action.
By the time they do act, it’s too late. Most of the damage has already been done and it’s actually time to pick up bargains.
My father, Irving Weiss, whose legacy is behind the AI driving our AI Profit Machine, personally experienced America’s greatest crash and bear market of all time — from 1929 to 1932.
That was a different era, and I’m not suggesting that we will soon experience a similar phenomenon.
However, what he wrote about his experiences during that period can provide some clues about what to do in in the face of market crashes today …
America’s Greatest Bear Market of All Time
by Irving Weiss (1908 — 1997)
In the 1930s, at each step down the slippery slope of the market’s decline, Washington periodically announced some new initiative to turn things around.
President Hoover gave periodic pep talks promising “prosperity around the corner.”
And often, the Dow staged dramatic rallies — up 30 percent on the first round, 48 percent on the second, 23 percent on the third and more.
Each time, I sought to use the rallies as selling opportunities. I persuaded more of my clients to get rid of their vulnerable stocks, move into safer havens and pile up cash.
I also told them to take their money out of shaky banks.
On the surface, it might have appeared that holding a big cash position got you nowhere.
Actually, though, it was a great strategy for building wealth.
Prices were falling on almost everything. So, the more prices fell, the more your money was worth.
Just by saving money, stashing the cash, keeping your job and going about your daily life, you were building wealth. You didn’t have to know about investing. All you needed to figure out was how to protect yourself from the bad times.
Then, when we hit rock bottom — that was the time to buy stocks again.
You could also profit immensely from the decline itself with short-selling. That’s how my friend Bernard Baruch built a great fortune, and how I did, too.
But even if you never sold one share of stock short, just sitting out the crash and building cash opened up great wealth-building opportunities as we approached the end of the decline.
That end came with two events: the inauguration of our new president, Franklin D. Roosevelt, and the national banking holiday he declared on his third day in office.
But after three years of panics and crashes, most people greeted those events with dread. They thought it would be the beginning of another, even steeper slide.
Some people even said it was the final chapter of capitalism itself. As it turned out, that was precisely the right time to pick up some of the greatest bargains of the century and make a lot of money.
The Great Depression continued for seven more years. And future generations think it must have been the most terrible time to live in America.
Not so. Many folks of my generation have fond memories of the family togetherness and shared sacrifices of that period, and I do, too.
But I also cannot deny the numbers. In just three short years between the peak of the stock market boom in 1929 and the bottom in 1932, it felt like the entire world was falling apart.
The financial bubble burst.
Big companies failed.
America lost 13 million jobs.
Unemployment surged to 25 percent.
American industry cut its production nearly in half.
Home construction plunged by more than four-fifths.
Deflation drove the value of almost every asset into the gutter.
Over 5,000 banks failed and ultimately disappeared.
Most Americans — especially the youngsters who manage billions of dollars on Wall Street — have no concept of the power and speed of a great stock market crash.
They’ve never lived through one. So, it’s hard for them to visualize it.
In 1929, people were jumping out of windows, and once-wealthy people were selling apples on street corners. The shockwaves reached into almost every office and every home in the country and in the world.
Next time, especially if Washington tries too hard to stop the crisis, it could ultimately be just as bad, or even worse.
Takeaways for Investors Today
That’s what my father wrote before he died.
He accurately described both the facts and the psychology of America’s greatest crash in history.
Now, let me answer the urgent questions investors face today.
Q. Is the market crash that has just struck global markets the same as the 1930s-type decline?
No. In the 1930s, the government did not have the powerful tools available today to counter market declines.
Not only rate cuts, but also the most aggressive money-printing in history.
Not only some more government spending, but also of the wildest government borrowing in history.
Q. Do these government interventions address the nation’s fundamental economic and social diseases?
No. The overwhelming evidence shows that, in the long term, they only make things worse. But the evidence also shows that they can postpone a true day of reckoning for a long time.
Q. What steps should I take right now?
First, focus on stocks meriting a Weiss Rating of “Buy” (B- or better). In AI Profit Machine, we’ve already been buying primarily stocks in the high end of our rating scale, and weeks before the recent decline, we stepped that up even further.
Second, make sure you keep a substantial portion of your portfolio in cash or cash equivalents.
As I mentioned in my prior Q&A, I’m a conservative investor. I keep up to three-quarters of my assets in liquid securities. Then, among those, I usually keep more than half in what I consider the safest securities in the world, such as U.S. Treasury bills, gold bullion and equivalents.
That typically boils down to a range of approximately 10% of my assets in stocks on the low end, and 30% on the high end.
How you allocate your assets, of course, is up to you.
I’ll soon be 78 years old and prefer to err on the side of safety.
You should know, however, that I take this posture not only because of my age. I think it makes sense for almost everyone, especially in this era of black swan events and extreme politics.
Q. What about doing what your father did — selling short in the stock market to actually make money from a decline?
In my father’s day, outright short-selling was pretty much the only way. But it comes with unlimited risk that was — and is — far beyond the realm of average investors.
Instead, I recommend investors modify that strategy in two critical ways:
1. Instead of outright short-selling, use inverse ETFs that limit your risk to the amount you invest and effectively do the short-selling for you.
For a decline in tech stocks, consider the ProShares Short QQQ (PSQ). If QQQ goes down 1%, it is designed to go up by 1%.
For a decline in the S&P 500, consider the ProShares Short S&P 500 ETF (SH). When the S&P 500 Index goes down, it’s also designed to go up one-to-one.
2. Instead of using these ETFs as speculative instruments designed to make a killing in a crash, use them instead for protection against potentially outsized losses in your portfolio.
If you already have a substantial cash position, that alone may give you the protection you need.
However, if your portfolio is heavily weighted toward stocks and you cannot afford to take even temporary losses, seriously consider moving some of your money into these kinds of protective hedges.
No one can say with certainty what the future will bring.
And the worst outcome would be to wait for the lowest prices before taking action.
If anything, that should be a great time to buy.
Good luck and God bless!
Martin D. Weiss, PhD
Weiss Ratings Founder
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