I've been a Wall Street analyst for 15+ years. Lived through 2008, Dot-com aftermath, Covid crash.
Here's what I've learned:
Most investors who started in the last 3-5 years have experienced something INCREDIBLE:
📈 Markets mostly going UP 🚀 Every dip bought within days
💰 50%+ returns feel "normal" ✅ Pure bull market conditions
This is AMAZING for building wealth.
But there's one problem: They haven't experienced the OTHER side yet.
⚠️ WHAT I'M SEEING:
People running 2-3x leverage
Expecting triple-digit returns like it's guaranteed
Think dips last 3 days max
Zero preparation for downside
When the music stops, it's going to be brutal.
So here's what the "other side" actually looks like - with REAL historical data - and how I'm preparing my own portfolio for it.
Not advice. Just transparency on what I'm doing.
📉 THE HISTORICAL RECORD - What Actually Happens in Recessions
Here are five major crashes with REAL numbers:
HISTORICAL CRASHES:
1973-74 Oil Crisis:
S&P 500: -45%
Recovery: FIVE YEARS
Earnings dropped -33%, P/E collapsed to 7-8x
2000-02 Dot-com:
S&P 500: -50%
Nasdaq: -78%
Recovery: FIFTEEN YEARS for Nasdaq
Earnings -25%, P/E fell to 13x
2008-09 Financial Crisis:
S&P: -57% (1,565 → 666)
Recovery: FIVE YEARS
Earnings -40%, P/E fell to 10x
2020 Covid:
-34% in 33 DAYS (fastest bear market ever)
Recovered fast only because Fed printed TRILLIONS
Don't expect same bailout next time
⚠️ WHERE WE ARE TODAY - The Dangerous Setup:
Current Market (Q3 2025):
S&P 500: ~6,750
Forward P/E: 22-23x
Forward earnings: $305/share
Historical Context:
35-year average P/E: 16x
10-year average P/E: 18x
🚨 We're 38% ABOVE long-term average 🚨 We're 28% ABOVE 10-year average
Translation: Market is pricing in PERFECTION.
💀 THE DOUBLE KILL - Why It's Worse Than You Think:
Most people understand: Recession = lower earnings.
What they DON'T understand: You get hit TWICE.
KILL #1: Earnings Collapse Corporate profits drop 15-40%
+ KILL #2: Multiple Compression Nobody wants to pay 22x earnings in panic. P/E ratios collapse to 10-15x.
THE MATH ON TODAY'S MARKET:
Mild recession (-15% EPS, P/E 15x): → S&P target: 3,885 (-42%)
Moderate recession (-25% EPS, P/E 13x): → S&P target: 2,977 (-56%)
Severe recession (-40% EPS, P/E 10x): → S&P target: 1,830 (-73%)
💀 THE LEVERAGE TRAP (I see this daily):
Person running 50% margin with $100k:
Mild recession (-42%):
$150k position → $87k
Still owe margin: $50k
Your equity: $37k
You lost 63% vs 42%
Moderate recession (-56%):
$150k → $66k
Owe: $50k
Your equity: $16k
You lost 84%
Severe recession (-73%):
You're WIPED OUT completely
And that's ASSUMING no margin calls force you to sell at the worst possible prices.
This is how retail gets destroyed. 💀
So how am I preparing?
🛡️ MY ACTUAL HEDGE STRATEGY - Full Transparency
Here's exactly what I'm holding to protect against these scenarios:
📍 MY CURRENT POSITIONS:
Position 1: $SPLG PUTS
Strike: $77
Expiration: June 18, 2026 (251 days)
Quantity: 5 contracts
Cost per contract: $3.65
Current value: $3.14
Position 2: $SPY PUTS
Strike: $670
Expiration: June 18, 2026 (251 days)
Quantity: 1 contract
Cost per contract: $30.90
Current value: $30.92
The Economics:
Total cost: ~$5k (~3% of portfolio)
Protects: ~60% of portfolio value
Protection ratio: 20:1
Bought when VIX ~16% (historically LOW)
This isn't "betting against the market."
This is professional risk management with asymmetric payoff.
💰 MY PORTFOLIO CONTEXT:
Current portfolio value: ~$175k
Mix of stocks and short-term options positions
~10% cash reserves
Put hedges as insurance layer
🎯 THE SECRET WEAPON: VOLATILITY
I'm not just buying downside protection. I'm buying VOLATILITY at 16%.
WHEN RECESSION STARTS:
VIX spikes from 16% → 40-80%
My puts EXPLODE in value
Even BEFORE market fully crashes
Real Historical Examples:
2008 Financial Crisis:
VIX → 80-85
Long-dated ATM puts: 20-30x returns
2020 Covid:
VIX → 85 in March
Puts bought at VIX 12-15: 15-40x returns
I'm not betting on TIMING the crash. I'm betting on FEAR.
And fear ALWAYS comes. 🚀
💥 WHAT THESE RETURN IN DIFFERENT SCENARIOS:
Current prices: SPY ~$670, SPLG ~$79
Mild Recession (S&P -36%):
Return: ~7x
Moderate Recession (S&P -53%):
Return: ~11x
Severe Recession (S&P -72%):
Return: ~15x
📊 PORTFOLIO PROTECTION MATH:
Current portfolio value: $175k
If market crashes -50%:
WITHOUT HEDGE:
$175k → $87.5k (-50%)
Loss: -$87.5k
WITH MY HEDGE:
Portfolio loss: -$87.5k
Put gains: +$48k
Net: $175k → $135.5k (-23%)
Turned a -50% crash into a -23% drawdown.
That's 27 percentage points of protection.
Cost: ~3% of portfolio (~$5k).
💡 CAN'T AFFORD $SPY OPTIONS?
Use $SPLG instead (what I primarily use):
Same S&P 500 index
~$79 vs SPY $670
10x CHEAPER options
This is why I have 5 SPLG vs 1 SPY
Other alternatives:
$IWM - Russell 2000
$QQQ - Nasdaq 100
Inverse ETFs - $SH, $SDS, $SQQQ
📊 I SHARE EVERYTHING ON X:
I post my real-time trades, hedge adjustments, and portfolio decisions daily at @TomAlphaTrades
Not just "I made money" posts - the actual positions, thinking, and execution.
💭 THE MINDSET:
Don't think: "I hope recession doesn't come" Instead think: "When recession comes, I'm ready"
🔥 Recessions don't destroy wealth - they TRANSFER it.
From unprepared → to prepared.
The best time to buy insurance is BEFORE the house catches fire. 🔥
See you on X 🚀