Peter Lynch Warned That More Money Is Lost Preparing for Crashes Than in the Crashes Themselves. Here’s How Not to Be That Investor
On Thursday, November 5, 2026, the S&P 500 fell 4.4% in a single day. It was the market's worst day since the "Liberation Day" tariff panic of April 2025. The Nasdaq dropped 5.5%. Nvidia lost 9.3%. MarketWatch estimated that about $2.9 trillion of stock market value disappeared before the closing bell.
That night, millions of people typed the same question into Google.
Should I sell my stocks before a crash?
If you are over 40, and you have already lost money in the stock market once, that question doesn't feel like theory. It feels like a smoke alarm going off in your house. Every part of you wants to grab what is left and run.
This article is for that moment.
The short answer For most long-term investors, no. Selling because you think a crash is coming means you must be right twice: when to get out, and when to get back in. Almost nobody gets both right. The best days in the market usually arrive right after the worst ones, so people who sell early tend to miss the recovery. A better plan is to hold enough cash and bonds for anything you need in the next 3 to 5 years, keep the rest invested, and rebalance on a set schedule. |
One of the greatest fund managers who ever lived put it more bluntly. Peter Lynch, who ran Fidelity's Magellan Fund from 1977 to 1990, said that far more money is lost by investors preparing for corrections than is lost in the corrections themselves.
That sounds like a slogan. It isn't. It is a measurable fact, and below you will see the numbers, the real stories, and a calm plan that lets you stop guessing.
Contents
What Peter Lynch actually said, and why
Lynch said it in a September 1995 interview with Worth magazine. The stock market had been rising for years. People were nervous. Surely a crash was due.
Here is his famous line, in full:
"Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves." — Peter Lynch, Worth magazine, September 1995
Lynch didn't say crashes don't hurt. He had lived through plenty of them. His point was about what scared investors do before the crash arrives.
He described two common mistakes.
Mistake No. 1: Buying "insurance" against a fall
Some investors buy options or futures that pay off if stocks drop. Lynch warned that this kind of protection expires every few months and has to be bought again and again. He called hedging a tricky business that even professionals haven't mastered.
The cost of all that insurance quietly eats your returns, year after year, while you wait for a crash that may not come for a long time.
Mistake No. 2: "Lightening up"
This was the one Lynch called more common. Investors sell some or all of their stocks and sit in cash, waiting for the crash. And here is the trap he spotted: even after a fall finally comes and the market bottoms, many of these people keep waiting. They expect it to fall further. It doesn't. The market climbs away without them.
In his words, they have turned themselves into market timers.
Lynch's own numbers
Lynch backed his warning with data on the S&P 500 over the 40 years starting in 1954. An investor who stayed in the whole time earned about 11.4% a year. Then he showed what happened to people who stepped out of the market and missed its best months:
What the investor did | Average yearly return |
Stayed invested all 40 years | 11.4% |
Missed the best 10 months (about 2% of the time) | 8.3% |
Missed the best 20 months | 6.1% |
Missed the best 40 months | 2.7% |
Ten months out of 480. That is all it took to cut the yearly return by more than a quarter.
Small differences in yearly return become giant differences over time. If you compounded $100,000 at 11.4% a year for 20 years, you would end up with about $866,000. At 8.3% you would have about $493,000. Same money, same market, same 20 years. The only difference is ten missing months.
The lesson to keep You don't lose most of your future wealth in the crash. You lose it by being out of the market on the handful of days and months that drive most of the gains. |
Lynch practised what he preached, even in 1987
Talk is cheap. So what did Lynch do when the worst one-day crash in modern history hit his own fund?
In October 1987, Lynch was on holiday in Ireland. On Monday, October 19, the Dow Jones Industrial Average fell 22.6% in one day. It is still the biggest one-day percentage fall in the Dow's history. Over two days, Lynch's Magellan Fund lost about a third of its value. He cut the trip short.
What he didn't do was give up on stocks.
The S&P 500 still finished 1987 with a small gain for the year. Lynch kept running Magellan until 1990 and finished his 13 years with an average return of about 29% a year, one of the best long-term records any mutual fund has ever posted.
He had every reason, every excuse and every headline to "get out before it gets worse". He stayed.
Why selling before a crash feels so smart
If the numbers are this clear, why do so many smart, hard-working people still sell?
Because selling feels responsible. It feels like doing something. And our brains are wired to hate losses far more than we enjoy gains. Psychologists call it loss aversion. Losing $10,000 hurts much more than gaining $10,000 feels good.
There are three extra reasons it hits investors over 40 harder:
You have more to lose. A 30% fall on $20,000 is painful. A 30% fall on $400,000, ten years before retirement, feels like the end of the world.
You have been burned before. If you lived through 2000, 2008 or 2020, your body remembers. A red day on the news brings it all back.
The news is built to scare you. "Trillions wiped out" makes a better headline than "Index finishes year higher". Fear keeps people watching.
If this sounds familiar, you are not weak and you are not stupid. You are human. I wrote a whole guide on why smart, hard-working people sell at the very bottom, and the one rule that stops it.
The fix isn't to feel less fear. The fix is to have a plan that doesn't need you to predict anything.
The hidden trap: you have to be right twice
Here is what nobody tells you when you think about selling before a crash.
Selling is only half the decision. To come out ahead, you must make two correct calls:
Sell before the fall, and not too early.
Buy back in before the recovery, and not too late.
Get either one wrong and you can end up worse off than if you had done nothing at all.
The man who was right, and still cost people money
On December 5, 1996, Federal Reserve chairman Alan Greenspan asked in a famous speech whether "irrational exuberance" had pushed stock prices too high. That night, the Dow closed at 6,437.
Anyone who sold that week felt wise. The most powerful central banker in the world had just warned that stocks looked too expensive.
Then the market kept rising. The Dow peaked at 11,722 in January 2000, more than three years later.
Greenspan was eventually proven right. The dot-com bubble burst and the Dow fell hard. But at its 2002 low, the Dow was 7,286. That was still about 13% higher than the day he gave his warning.
So the people who sold in December 1996 and waited for the crash were right about the crash, and still never got a chance to buy back cheaper than where they sold. That is the trap. Being right about a crash is not the same as making money from it.
What happened to real people who sold in 2008
In 2011, Fidelity studied 7.1 million 401(k) retirement accounts. About 117,000 savers had sold all their stocks between October 2008 and March 2009, as the S&P 500 fell 31%.
Selling felt like protection. Here is how it turned out by June 30, 2011:
What the saver did | Change in average account balance |
Sold all stocks and stayed out | +2% |
Sold, then bought stocks back later | +25% |
Kept some money in stocks | +50% |
About half of those who sold had still not bought back in by mid-2011. From March 31, 2009, to June 30, 2011, the S&P 500 climbed about 66%.
Fidelity checked again years later. Five years after the crisis, a quarter of those who sold out of stocks still hadn't reinvested.
That is what Lynch meant. The crash took a bite. But the decision to sell, and the fear of getting back in, did far more damage.
The best days hide inside the worst days
Here is the part that surprises almost everyone.
The market's best days do not usually come in calm, happy times. They come in the middle of the panic, often just days after the worst ones.
J.P. Morgan Asset Management looked at the S&P 500 over 20 years and found that seven of the 10 best days came within 15 days of one of the 10 worst days. If you sold on a terrible day, there was a good chance one of the best days of the decade was only a week or two away.
The Motley Fool ran the numbers on $10,000 put into the SPDR S&P 500 ETF (SPY) on October 12, 2006, with dividends reinvested, through October 12, 2026:
What the investor did | Value after 20 years |
Stayed invested the whole time | about $82,300 |
Missed the 10 best days | about $35,700 |
Missed the 20 best days | about $21,500 |
Missed the 40 best days | about $9,900 |
Miss the 10 best days, out of roughly 5,000 trading days, and you end up with less than half the money. Miss the 40 best days, and after 20 years you have less than you started with.
Now look at when those 10 best days happened. Six came between October 2008 and March 2009, in the depths of the financial crisis. Three came in March and April 2020, during the Covid crash. One was April 9, 2025. And every single one of them arrived when the market was already at least 18% below its previous peak.
In other words, the best days happened exactly when "selling before it gets worse" felt most sensible.
J.P. Morgan's latest figures, with data to June 30, 2026, tell the same story: staying fully invested in the S&P 500 over the past 20 years earned about 11.3% a year, and missing just the 10 best days cut that return by more than half.
The April 2025 lesson: 89 trading days
If you want a recent, real-life example, here it is.
On February 19, 2025, the S&P 500 closed at a record 6,144. Then came the tariff shock. After the "Liberation Day" tariff announcement on April 2, the index fell about 12% in just four trading days. By the close on April 8, it was almost 19% below its February peak. Many investors sold. It felt like 2008 all over again.
Then on April 9, the White House announced a 90-day pause on most of the new tariffs. The S&P 500 jumped 9.5% in a single day, its best day since 2008.
Date (2025) | What happened |
February 19 | S&P 500 closes at a record high |
April 3 to April 8 | Tariff panic: index falls about 12% in four days |
April 8 | Down almost 19% from the February record |
April 9 | Tariff pause announced: S&P 500 jumps 9.5% |
June 27 | New record high, just 89 trading days after the old one |
The Wall Street Journal reported that this was the fastest recovery to a record ever after a fall of at least 15%, according to Dow Jones Market Data.
Investors who sold on April 8 locked in the loss. Investors who sold on April 7 and "waited for things to calm down" missed the 9.5% day. Investors who did nothing were back at a record high by the end of June.
Think about this On April 8, 2025, there was no way to know the pause was coming the next morning. Nobody rang a bell. That is the whole problem with selling before a crash: the recovery doesn't send you a warning either. |
"But what if I just sit in cash and wait for the dip?"
This is the gentler version of the same idea. You don't sell everything. You just keep new money in cash, waiting for a better price.
Charles Schwab tested it. They imagined five investors, each receiving $2,000 a year for 20 years (2005 to 2024), with five different habits:
Perfect timing: invested every year at the exact lowest day of the market. Impossible in real life.
Invested right away: put the money in on the first trading day of each year.
Invested monthly: split the $2,000 into 12 equal monthly amounts.
Worst timing: invested every year at the market's highest day. The unluckiest person alive.
Waited in cash: always expected a better price later, so never bought stocks at all.
Investor | Ending wealth after 20 years |
Perfect timing | $186,077 |
Invested right away | $170,555 |
Invested monthly | $166,591 |
Worst timing | $151,343 |
Waited in cash | $47,357 |
Look at the last two lines. The person who picked the worst possible day every single year still finished with about three times more money than the person who waited in cash for a better moment.
And the impossible "perfect" timer only beat the simple invest-right-away investor by $15,522 over 20 years. All that genius, for less than $800 a year.
Schwab ran the same test over many other 20-year periods going back to 1926 and found almost identical rankings. In their study, investing right away never came last.
What about when the market is at a record high?
This is the other big fear in November 2026: "The market is near its all-time high. Surely that means a crash is close."
J.P. Morgan looked at that too. Historically, if you invested in the S&P 500 on a day it hit an all-time high, your average return one year later was 14%. If you invested on any day at all, it was 12%. Record highs are not a reliable sell signal. Markets that keep growing spend a lot of time at record highs.
The quiet cost of jumping in and out
Every year, Morningstar measures the gap between what funds earn and what the people in them actually earn, because investors buy and sell at the wrong times.
In its latest study, covering the 10 years to December 31, 2025, the average dollar in US mutual funds and ETFs earned 8.7% a year. The funds themselves earned 9.9%. That gap of 1.2 percentage points a year is about 12% of the total return, gone, mostly from bad timing. And the gap was widest in the most volatile funds, the ones that scare people most.
I wrote more about this in The Hidden Gap That Left Ordinary Investors Behind the Market.
How bad are crashes really, and how long do they last?
None of this means crashes are harmless. They are not. Let's be honest about them, because a plan built on comfortable myths breaks the first time it's tested.
According to Hartford Funds, US stocks have had a bear market (a fall of 20% or more) roughly every 3.5 years since 1928. The average bear market has knocked about 35% off the S&P 500. If you invest for 50 years, you should expect to live through about 14 of them.
So the question is not whether you will go through crashes. You will. The question is how long they last.
Fall | Months from old peak to new record (price only) |
1973 to 1974 (oil shock) | about 90 |
1980 to 1982 (high interest rates) | about 23 |
1987 (Black Monday) | about 23 |
2000 to 2002 (dot-com bust) | about 86 |
2007 to 2009 (financial crisis) | about 66 |
2020 (Covid) | about 6 |
2022 (inflation) | about 25 |
2025 (tariffs, almost 19%) | about 4 |
These numbers use index prices only. With dividends reinvested, recoveries came faster.
Two things stand out.
First, most recoveries were measured in months or a couple of years, not decades.
Second, a few were genuinely long. After 1973 and after 2000, the S&P 500 took seven years or more to reach a new price high. If you needed your money during those years, a crash could hurt you badly. That is why the real answer isn't "never sell". It is "never have money in stocks that you will need before the market has time to recover".
If you want to see the worst case of all, read what happened to investors in Japan, who waited 34 years, and why a broad global or S&P 500 fund is set up differently. And for the long-run record, here is every rolling 20-year period of the S&P 500 since 1926.
Hartford Funds also found that about 78% of the market's best days happened either during a bear market or in the first months of a new bull market, before anyone could tell a recovery had started. That is why getting back in "once it feels safe" so often means getting back in too late.
When selling before a crash IS the right move
Here is where most articles stop. "Don't time the market. The end." That advice is true, but it is not complete, and it can leave a 60-year-old with every penny in stocks feeling stuck.
There are good reasons to sell stocks. A forecast is not one of them. These are:
Reason No. 1: You will need the money soon
If you need money for a house, a child's university fees or your first years of retirement within the next 3 to 5 years, that money should not be in stocks at all. Not because a crash is coming, but because a crash could come, and you won't have time to wait for the recovery.
This is a calendar decision, not a market decision. You would make the same move whether the news was good or bad.
Reason No. 2: Your stock share has drifted too high
Say you planned 60% in stocks and 40% in bonds. After a few strong years, stocks have grown to 75% of your money. You are now taking more risk than you signed up for. Selling some stocks to get back to 60% isn't market timing. It is called rebalancing, and it is one of the few free lunches in investing.
Reason No. 3: You are using borrowed money
If you have bought stocks on margin (with money borrowed from your broker), a crash can force you to sell at the worst moment. Paying down that loan is not a prediction. It is removing a trap.
Reason No. 4: Too much of your wealth sits in one company
If most of your money is in a single stock, maybe your employer's, one bad piece of news can do damage that the broad market would recover from but that one company might not. Spreading that money into a broad index fund is wise in any market.
Reason No. 5: Your life has changed
A new health issue, a job loss, a new retirement date. When your life changes, your plan should change too. Rewrite the plan first, then adjust your investments to match it.
The test for any sale Ask yourself: "Would I make this same move if the market had gone UP 20% this year?" If the answer is yes, it is probably a sound plan decision. If the answer is no, it is probably fear wearing a suit. |
Pick your crash size before the crash picks it for you
Here is the most useful idea in this whole article.
You cannot choose when a crash happens. But you can choose, in advance, roughly how much a crash can hurt you. You do it with your mix of stocks and bonds.
Vanguard has tracked model portfolios all the way back to 1926. Here is what different mixes earned on average, and their worst single year:
Mix (stocks / bonds) | Average yearly return | Worst single year |
100% stocks | 10.3% | -43.1% |
80 / 20 | 9.5% | -34.9% |
60 / 40 | 8.8% | -26.6% |
40 / 60 | 7.8% | -18.4% |
20 / 80 | 6.6% | -10.1% |
100% bonds | 5.3% | -8.1% |
More stocks bring higher returns over time, and deeper falls along the way. There is no free option. But you get to choose your spot on the menu while you are calm, not in the middle of a panic.
A worked example
Imagine you are 58, with $500,000 saved, planning to retire at 65. Here is roughly what a repeat of history's worst single year would mean at three different mixes:
Your mix | Worst year in history | Paper loss on $500,000 |
100% stocks | -43.1% | about $215,500 |
60 / 40 | -26.6% | about $133,000 |
40 / 60 | -18.4% | about $92,000 |
Now ask yourself honestly: which of those losses could you sit through without selling?
If the answer is "only the smallest one", then 100% stocks was never the right mix for you, crash or no crash. Choosing a calmer mix today, while markets are still near their highs, is not timing the market. It is choosing a plan you can actually stick to.
That matters, because the worst outcome isn't a 43% paper loss that later recovers. The worst outcome is a 43% loss that you turn into a permanent one by selling at the bottom.
For a simple way to build this mix with just two or three funds, see The Lazy 3-Fund Portfolio. And if you are close to retirement, read the 4% rule every retiree should know.
Should you sell? Use this decision flowchart
Next time the headlines turn red, don't ask "Is a crash coming?" Nobody knows. Ask these four questions instead, in this order:
Notice what is not on the chart: "What do the experts predict?", "What did the news say?" and "How do I feel today?" None of those should move your money.
Your crash-proof plan in 7 steps
This is the plan that lets you sleep through November 5, 2026, and whatever comes after it.
Step No. 1: Build an emergency fund first
Keep 3 to 6 months of living costs in a high-yield savings account or money market fund. It isn't an investment. It is the wall that stops a job loss or a car repair from forcing you to sell stocks in a crash.
Step No. 2: Set aside your "near money"
Anything you will spend in the next 3 to 5 years goes into cash, short-term bonds or term deposits. If you are retired or close to it, many people keep one to two years of planned withdrawals in cash, so they never have to sell stocks during a bad year.
Step No. 3: Pick your mix, and write it down
Use the table above. Choose the stock and bond mix whose worst year you could live through. Write it on one page, with today's date. This page is your investment policy. It is the calm you, giving instructions to the scared you.
Step No. 4: Use broad, low-cost index funds
A broad index fund owns hundreds or thousands of companies, so no single failure can sink you. If you are starting over after a loss, here is a plain-English guide to index funds for people who have been burned.
Step No. 5: Set a rebalancing rule
Pick one: rebalance once a year on your birthday, or whenever your stock share drifts 5 percentage points away from your target. Either works. What matters is that the rule decides, not the news.
Step No. 6: Automate your investing
Set up a fixed monthly amount that goes in no matter what. In a crash, that same amount buys more shares at lower prices. It takes the "is now a good time?" question off your plate for good. Here is how to invest 15 minutes a year and stop watching the market. And if you are wondering whether to put a large sum in all at once, read Lump Sum or Monthly?
Step No. 7: Use the 72-hour rule
Never make a big investment decision on a day the market moves more than 2%. Write down what you want to do, then wait 72 hours. If it still makes sense against your written plan, do it. Most of the time, the urge fades.
What to do tonight
Tonight's checklist ☐ Write down how much money you will need in the next 5 years. Is that amount out of stocks? ☐ Check your current stock and bond mix. Is it close to the mix you can stomach? ☐ Confirm you have 3 to 6 months of costs in an emergency fund. ☐ Check for any margin loan or borrowed money in your investment account. ☐ Delete one stock market app from your phone's home screen. ☐ Write your one-page plan and put it where you will see it on the next bad day. |
If the market has already dropped a lot and you are reading this mid-panic, these two guides will help: The Market Just Dropped 20%. Here's What Calm Investors Do Next and What Happens to Your Life Savings if the Market Crashes 50% Tomorrow?
What about the market right now?
As I write this, in November 2026, the reasons to worry are easy to find. AI stocks have swung wildly. The S&P 500 just had its worst day in 19 months. There is new political uncertainty after the midterm elections. Some commentators are calling it a bubble.
Some of them may turn out to be right, eventually. But notice what happened the very next day: on Friday, November 6, the S&P 500 rose 0.3% and ended the week only about 5.7% below the record it set in October.
I don't know what the market will do next week, next month or next year. Neither does anyone on television. Lynch didn't know either, and he didn't pretend to. He just made sure he never needed to know.
That is the real goal. Not predicting the crash. Building a plan where you don't have to.
Frequently asked questions
Should I sell my stocks before a recession?
Usually not because of a recession forecast alone. Stocks have often fallen before recessions were officially declared and started recovering before they ended, so sellers tend to miss the rebound. Sell only if you need the money within 3 to 5 years, your stock share is above your target, or your life has changed.
Should I move my 401(k) or retirement account to cash before a crash?
Fidelity found that savers who moved fully to cash in the 2008 crash grew their balances only 2% by mid-2011, versus 50% for those who kept some stocks. A better move is to choose a stock and bond mix you can hold through a bad year, then rebalance.
What happens to my stocks if the market crashes?
Their price falls, but you still own the same number of shares in the same companies. A loss only becomes permanent if you sell at the low price. The S&P 500 has recovered from every past crash, although some recoveries took several years.
Where is the safest place to put money before a crash?
For money you need within a few years, high-yield savings, money market funds, short-term government bonds or term deposits are the usual choices. For long-term money, the safest plan is usually a diversified mix of stock and bond index funds you won't need to sell.
Is it smart to sell when the market is at an all-time high?
Not by itself. J.P. Morgan found that investing on an all-time-high day returned 14% a year later on average, versus 12% for investing on any day. Strong markets set records often. A record high is a reason to check your mix, not to sell everything.
How long does it take the stock market to recover from a crash?
It varies. The S&P 500 took about 6 months to reach a new high after the 2020 Covid crash and about 4 months after the 2025 tariff drop, but roughly 5 to 7 years after the 2000 and 2008 crashes. That is why money needed within 5 years shouldn't be in stocks.
Did Peter Lynch ever sell before a crash?
Lynch said he couldn't predict crashes and didn't try. When Black Monday hit in October 1987, his Magellan Fund fell by about a third in two days, but he kept investing and finished his 13 years with an average return of about 29% a year.
What should I do if I already sold my stocks?
Don't wait for the "perfect" moment, because that is how investors stay out for years. Write a target mix, then return to it on a fixed schedule, for example equal monthly amounts over 6 to 12 months. That way the plan decides, not your mood.
About the author
Stephen Loke has been a student of the market for more than 15 years. He is also an agritourism entrepreneur whose farm has been featured in Bloomberg News and Asahi Shimbun. He writes Invest And Grow for people who have lost money in the stock market and still want to build real wealth for retirement.
This article is general education, not personal financial advice. I'm not a licensed financial adviser, and nothing here is a recommendation to buy or sell any specific investment. Past performance doesn't guarantee future results. Please consider your own situation, or speak to a licensed professional, before making investment decisions.
The calm way forward
Peter Lynch had more reason than almost anyone to fear crashes. He watched his fund lose a third of its value in two days. And he still concluded that the fear of crashes does more damage than the crashes themselves.
You don't need to predict the next crash. You need a mix you can hold, cash for the next few years, a written plan, and the patience to let time do its work. People who do those four things don't need to be right about the future. They just need to stay in their seats.
If you have lost money in the market before, and part of you still wonders whether it was your fault, I have written something for you.
My free 38-page report, "Why You Lost Money in the Stock Market (And Why It Wasn't Your Fault)", shows you:
the hidden traps that cost ordinary investors the most, and how to spot them before they cost you again
why fear-driven selling feels so right in the moment, and the simple rules that stop it
the plain, low-cost approach that lets you invest for retirement without watching the news every day
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Bloomberg, "Best Stock Rally Since 2008 Boosts Wall Street", April 9, 2025: https://www.bloomberg.com/news/articles/2025-04-08/stock-market-today-dow-s-p-live-updates
Dow Jones Newswires / The Wall Street Journal, "Historic Rebound Sends S&P 500 to New Highs", June 27, 2025: https://www.itiger.com/hant/news/2546990721
Charles Schwab, "Does Market Timing Work?": https://www.schwab.com/learn/story/does-market-timing-work
Morningstar, "Mind the Gap" (10 years to December 31, 2025): https://www.morningstar.com/business/insights/research/mind-the-gap
Hartford Funds, "10 Things You Should Know About Bear Markets": https://www.hartfordfunds.com/practice-management/client-conversations/managing-volatility/bear-markets.html
Bankrate via Fidelity.com, "Investing in a bear market 2025" (Hartford Funds data): https://fidelity.com/news/article/investing-ideas/202504111913BANKRATEBANKRATE2937793736
The Motley Fool, "4 Things Smart Investors Know About Bear Markets", December 30, 2022 (Yardeni Research recovery data): https://www.fool.com/investing/2022/12/30/4-things-smart-investors-know-about-bear-markets
Vanguard, "Investment portfolios: asset allocation models": https://investor.vanguard.com/investing/how-to-invest/model-portfolio-allocation
Visual Capitalist, "Visualizing 90 Years of Stock and Bond Portfolio Performance" (Vanguard data, 1926 to 2019): https://advisor.visualcapitalist.com/?p=52421
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