Disneyland and a house move have conspired to keep me away from my beloved blogs for two weeks. And in that time, the world has turned upside down. I’ve seen jaw-dropping statistics lighting up my Twitter feed. And, I could probably spend my next ten articles dissecting them.

Here’s one to chew one:

Since 1915, the average number of days it’s taken for stocks to fall into a bear market from a peak is 255. As of yesterday’s close, the Dow was 19% off its high (just shy of the 20% bear market threshold) in only 17 sessions. Assuming it drops another 1% at some point in the next few days, that makes this the fastest entrance to a bear market in history.

The speed has been breathtaking.

Unprecedented things happen all the time in the financial markets. But this one has been a doozy, no doubt. Those speculating that algorithmic trading could speed up the next bear market and exacerbate volatility can feel free to take a victory lap, I suppose.

Here are a few things I’m thinking about:

One: Students of history have been anticipating the next recession and accompanying bear market for years. We now have the opportunity to put to work all of the invaluable lessons learned during the 2008 meltdown. Many of which we outlined in the Bear Market Survival Guide.

Two: The time to buy portfolio protection is before the crash, not after. If you waited until the market was down 10+% and then purchased puts, then you had to pay a handsome premium. With the VIX shot to 50, the cost of options has become prohibitive. For example, a one-year 10% OTM SPY put has gone from costing around 3% to almost 9% of the price of 100 shares. Yikes!

Three: Rare market movements bring rare opportunities. It’s not every day you get to buy stocks 20% off the highs. The fear, of course, is that we’ll soon be down 30% or 40% from the peak. I’ve written about the pain and pleasure of lower prices before. Now is a good time to review it.

Four: What better way to test your risk protocols than suffer through the fastest drop in history. How did you do? Remember, there’s nothing wrong with losing money. All systems and investments suffer drawdowns. What is wrong is losing so much money that you can’t recover. Drawdowns of 5% to 10% are nothing to sneeze at, but they’re not irreparable. It’s the 20%+ drops in your portfolio value that are hard to bounce back from. As shown below, it becomes exponentially harder to dig yourself out of a hole the further down you go. A 10% drawdown only requires an 11% gain to recoup it. But a 50% whack? You have to score a 100% gain to get back to even.

Take the time to investigate how well you managed risk over the past month. If you lost too much money, then figure out why and make the needed changes or added rules to your plan to avoid it in the future. Did you have too many positions? Did you lack portfolio protection? Did you not exit when you should have? Put your detective hat on and start investigating.

As for my suggested shifts for active traders now that we’re in a massively volatile market, I’ll have a few suggestions in Thursday’s Options Theory blog.

Stay safe out there.