It was a little over 5 years ago, yet the older I get, 5 years seems only a moment ago.
What a wild time in history it was when markets were crashing, economies were closed down, human contact wasn’t allowed, where standing six feet apart from another human being was required, neighbors spying on each other to ensure everyone was following government mandates, and face masks were suddenly a staple of everyday life.
All under the guise of a pandemic.
In hindsight, we have more questions than answers about the government's response to COVID. Whether you agree or disagree with how it played out, we all have an opinion. It was February 2020, and the markets started on a shallow decline, which quickly turned into a full-blown rout, steeped in fear and panic [1]. It was the fastest market collapse in history [2], declining 34% in 33 days. It was not only ugly but fell out of the ugly tree and hit every branch on the way down kind of ugly:
In my lifetime, I can't recall a more chaotic and scary time. September 11th, 2001, is a close second, but at the time of the attacks, we had all known about terrorist attacks. Still, I have never experienced, much less even considered, a global pandemic of this magnitude.
In the midst of all that chaos created by COVID, why did the equity markets bottom on March 23rd? Was there some major announcement declaring a miracle cure, or was the pandemic over? Was the economy suddenly opened up? Was COVID suddenly contained?
Nope – none of those things happened.
For whatever reason (andwe’ll never know), investors had decided that equities had gotten cheap enough – so they decided to start buying. And boy, did they ever:
As it happens, equity markets fall until they don't. It's how it always plays out; investors don't care about the reasons for fear and panic; they start buying equities again when they get cheap enough.
That's the end of the story. There is no need to waste any more time with an in-depth analysis of why the equity markets turned on that March 23rd Day; they just did.
So why spend time reviewing those dark days in our history? What purpose would it serve? Because the lessons learned can be invaluable to us in the future.
First, despite whatever chaos surrounds investors, equities will get cheap enough to entice investors back into the markets – surprising all of us at the pace at which minds are changed and how quickly wallets for investing open up.
Second,we don't need to know what will happen, so be prepared for all that could happen. We didn't need to know back then and don't need to know now. The whole point of planning is to prepare and adapt to our ever-changing world. We've put in the work!
Keeping in mind that whatever economic policies are put in place by the current administration, the world's great companies will adjust, overcome, and adapt - just as they did at the height of a global pandemic.
Third, through pandemics, bear markets, corrections, or tariffs, history makes it obvious that being a permanent owner of equities, while sometimes uncomfortable, remains the only way I know to achieve a superior long-term rate of return that these companies have to offer. And, historically speaking, those returns have been worth the discomfort.
Lastly, along those same lines, every period of volatility we've endured over our lifetimes—no matter how dire it may have initially appeared—is rightly viewed today as an opportunity to buy.
To be clear, buying during a market collapse may feel foolish at that moment, but buyers have ultimately been rewarded. And since we're long-term investors, volatility should be viewed through the lens of opportunity rather than through a lens of risk.
Stay the course, my friends.
[1] This, and all other market data in this note (unless otherwise cited), is (are) from this Wikipedia page that recounts the entire COVID market episode. It’s a great read if you’re interested.
[2]Reuters