Here’s an interesting exercise demonstrating that you’d be better off if stock indexes were to crash by 66% than if they increase by 200% and then hold that final value. There are a couple of assumptions to consider before hoping that the market will crash. One assumption is that your retirement is 30 years away. You won’t need to spend the money tomorrow. The other assumption is that the stocks continue to pay dividends at their current levels and you reinvest those dividends in stocks. There’s where the long-term pay off is. You invest the dividends and are able to buy more shares of stock after the crash. Read the article and study its spreadsheets, then decide what you think.
As you can see, the plunge is demonstrably better for your retirement than the melt-up, with the obvious caveat that you have to maintain discipline and stick with the investment. If you panic and sell in response to the plunge, all bets are off.
Now, to be clear, we haven’t priced in the intangibles associated with melt-ups and crashes–specifically, the highly satisfying experience of watching investments appreciate, and the highly distressing experience of watching them crater, particularly when other people’s money is involved. If we’re taking those intangibles into account, then we should obviously prefer the melt-up. But on a raw return basis, the plunge wins.