Summary

Don’t sell out of the stock market because of a fear of a repeat of the 1929 crash, dot.com crash or the 2008 recession — or any other historical event happening again.

Since history is nonlinear, small differences between events can have widely different outcomes, so historical analogies are an uncertain guide to the future and can never prove anything.

Use analogical reasoning to begin an analysis, but always dig deeper into the underlying causes of the outcome of the past event before making an investment decision.

Many articles on Seeking Alpha and in many other trading and investing websites use analogical reasoning to make their arguments. Is today like 2000Is IBM like a utility? By far the most common type of analogy, however, is the historical analogy. Seeking Alpha’s search box returns more than 16,000 results for “like the 1930s” and almost 27,000 for “like the 1920s” with a strong affinity for 1929. If such articles scare you into considering getting out of the current stock market after the recent long bull run, you should think twice before making such a move based solely on arguments based on historical analogies.

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