When the floor is no longer the floor

Ryan Lemand recently highlighted a useful lesson from the Nasdaq collapse of 2000–2002. The index ultimately fell around 78%, but the journey down included rallies of approximately +35%, +12%, +25%, +41% and +45%.

Each rebound could have looked like the bottom. Each one gave investors, conditioned by the preceding bull market to “buy the dip”, another reason to believe that the worst was over.

That is what makes bear markets so difficult: some of their strongest rallies occur before the bear market has actually ended. Short covering, crowded positioning and renewed optimism can produce very powerful rebounds without changing the underlying trend.

As Ryan Lemand stresses, this is a lesson from history, not a forecast for today. The message is narrower: a 30% rally does not necessarily mean the floor has been reached. Sometimes it is simply another floor that disappears beneath your feet.

For investors, this is why position sizing and margin of safety matter. The real bottom is usually obvious only in hindsight.