Pieter Slegers — Kaplan's Pain Index
A crash is two numbers, not one: depth times recovery time, benchmarked to 1929 — and the surprise is that the 1970s oil crisis outranks every deeper crash on the list.
One-line take: the one piece of transferable machinery in the March run — a formula for how much a crash actually costs an investor. Pain surface = drawdown (%) × recovery time (years), indexed to 1929 as 100%. Worked twice: 1929 = 79 × 4.5 = 355.5; 2008 = 57 × 5 = 285, so 285 / 355.5 = 80.2% — "During the Financial Crisis, investors experienced 80.2% of the pain felt during the 1929 crash." COVID, a violent fall with a six-month recovery, scores just 7.1%. The finding that justifies the whole exercise is that the ranking inverts intuition: the oil crisis tops the table on a 48% drawdown that took eight years to recover — more painful than 1929, the dot-com bust or 2008, all of which fell further. The conclusion is stated as a correction to how risk is usually described: "Kaplan's formula gives equal weight to depth and recovery time, but investors don't experience them equally. Investors suffer most from a long recovery time… It's not the crash that hurts, it's the crawl back." The remedy offered is mechanical rather than analytical — dollar-cost averaging, with a worked case: through the 2000–2012 lost decade a $14,400 lump sum became $11,181 while $100 a month became $16,351, an outperformance of 35.9%. Three lost decades since 1900 are identified (1914–1945, 1973–1985, 2000–2012), and the same $100 a month from 2012 to 2024 turned $28,800 into $88,197.
1. The Kaplan Index, crash by crash
No stock table: the post names no company and takes no position on any security. What it does produce is a reusable measure, so the numbers it works through are tabulated here instead. Every figure below is quoted from the body text; the full published table of all major crashes since 1920 is an image and its other rows are not transcribed.
| Crash | Drawdown | Recovery time | Pain surface (drawdown × years) | Kaplan Index (vs 1929) |
|---|
| 1929 crash | 79% | 4.5 years | 355.5 | 100% — the benchmark by definition |
| Oil crisis (1970s) | 48% | 8 years | 384 | Highest on the published table — "surprisingly, the oil crisis ranks highest." Shallower than 1929, the dot-com bust and 2008, yet more painful than all three. |
| 2008 Financial Crisis | 57% | 5 years | 285 | 80.2% — "investors experienced 80.2% of the pain felt during the 1929 crash." |
| COVID crash (2020) | — | ~6 months to new highs | — | 7.1% — "a low score thanks to the rapid recovery." |
| Dot-com bubble (2000) | — | part of the 2000–2012 lost decade | — | Ranked below the oil crisis despite a deeper fall; the index value is on the published image only. |
The three lost decades named since 1900: 1914–1945 (two world wars plus the 1929 crash), 1973–1985 (inflation and weak markets) and 2000–2012 (dot-com plus the financial crisis). A "lost decade" is defined as "10 years or more without real growth… The market may rise, but not enough to outpace inflation." The method is on the actionable insights page.
2. Talking points
COVID: the crash that proves you cannot time it
- "The fastest market crash in modern history… It didn't just fall fast, it bounced back even faster. Just six months later, markets were hitting new all-time highs."
- The image used is the coma patient who wakes to news of a global pandemic, opens the broker app in a panic and finds the portfolio up 20%. "The COVID crash proved once again that you can't time the market."
The formula, stated in four steps
- Two inputs only: drawdown ("the drop from peak to bottom") and recovery time ("how long it takes to recover").
- Step 1 — set 1929 as the 100% benchmark. Step 2 — pain surface = drawdown × recovery years. Step 3 — divide by 1929's 355.5. Step 4 — read the result as a percentage of 1929's pain.
- The virtue of it is that it converts an intuition into an arithmetic anyone can rerun on any drawdown, including one they are currently in.
The finding that inverts the ranking
- The oil crisis: "Markets dropped 48%, but it took eight years to recover." That is shallower than 1929 (79%), the dot-com bust and 2008 (57%) — and yet it tops the table.
- "Even though markets fell more sharply during the 1929 crash, the dot-com bubble, and the Financial Crisis, the oil crisis felt more painful."
- And then the honest caveat about the formula's own limitation: "Kaplan's formula gives equal weight to depth and recovery time, but investors don't experience them equally. Investors suffer most from a long recovery time."
Why this matters in March 2026
- Published five days after Challenging Times, in the middle of a quality drawdown the archive describes as "very challenging." The index gives a language for the specific complaint being made: the problem is not the size of the fall but its duration.
- "It's not the crash that hurts, it's the crawl back" is, read in context, an argument for staying — and equally a warning that the crawl can run for years.
Dollar-cost averaging as the mechanical answer
- "You can't time the market. But you can tame it." The mechanism: fixed monthly purchases (his parents buy "on the first Monday of the month").
- The worked case through the worst modern stretch: $14,400 invested as a lump sum in 2000 was worth $11,181 by 2012 — a loss — while $100 a month over the same period reached $16,351. "Dollar-Cost Averaging outperformed lump sum investing by 35.9%."
- The continuation: keeping the same $100 a month in a global ETF from 2012 to 2024 turned $28,800 of contributions into $88,197.
- The claim being made is narrower than it looks — DCA wins in a flat-to-falling market by construction; the article does not present the reverse case, where a rising market favours the lump sum.
The mental battle, named
- "Patience can be tough when your stocks go nowhere (or even decline). Investing becomes a mental battle: you start to doubt yourself · emotions take over · discipline fades."
- The final framing is behavioural rather than statistical: "The real risk isn't the market, it is how you react to it… By investing every single month, you protect yourself from making emotional investment decisions."
Summary derived from the archived Compounding Quality post (text in transcript.txt) for personal study. Not investment advice. © Compounding Quality / Pieter Slegers for source material.