Q2 Was Tough On Those Who Panicked At The End Of Q1
The general rule is not to let emotion get to you when investing.
“Buy on Fear, Sell on Greed? Legendary investor Warren Buffet is a big proponent of this strategy. When others are greedy—typically when prices are boiling over—assets may be overpriced. On the flipside, there may be good buying opportunities when others are fearful.
“Most importantly, investors need to remain disciplined with their investment process throughout the volatility. History has shown that markets will eventually recover, and may reward patient investors.”
(Source: Visual Capitalist)
The following graphic shows that markets historically tend to recover after ‘black swan’ events, i.e. unexpected negative economic or market events.
(Source: Visual Capitalist)
The data tend to show that the more rapid the fall, the more rapid the recovery.
Event | Start of Sell-off/Previous Peak | Size of Sell-off | Duration of Sell-off (Trading Days) | Duration of Recovery (Trading Days) |
Israel Arab War/Oil Embargo | October 29, 1973 | -17.1% | 27 | 1475 |
Iranian Hostage Crisis | October 5, 1979 | -10.2% | 24 | 51 |
Black Monday | October 13, 1987 | -28.5% | 5 | 398 |
First Gulf War | January 1, 1991 | -5.7% | 6 | 8 |
9/11 Attacks | September 10, 2001 | -11.6% | 6 | 15 |
SARS | January 14, 2003 | -14.1% | 39 | 40 |
Global Financial Crisis | October 9, 2007 | -56.8% | 356 | 1022 |
Intervention in Libya | February 18, 2011 | -6.4% | 18 | 29 |
Brexit Vote | June 8, 2016 | -5.6% | 14 | 9 |
COVID-19* | February 19, 2020 | -29.5% | 19 | N/A (ongoing) |
* Figure as of market close on March 18, 2020. The sell-off measures from the market high to the market low.
(Source: Visual Capitalist)
The recent sell-off certainly was a rapid one:
(Source: Visual Capitalist)
Which means it should come as no surprise to see the markets come back very strong in the second quarter of this year.
Our internal analysis indicates that these very high returns in the second quarter might understate the nature of the market rebound as these indices are somewhat dominated by large companies, and in general, smaller companies tended to outperform larger companies during the second quarter.
The old adage about not selling during, or especially towards the end of, a panic seems to hold true so far this year.
Sources:
“Black Swan Events: Short-term Crisis, Long-term Opportunity,” March 2020, VisualCapitalist.com
“U.S. Stock Market Wraps Up Best Quarter in Decades,” July 2020, Statista.com
Originally published on Townhall Finance.
Jerry Bowyer is a Forbes contributor, contributing editor of AffluentInvestor.com, and Senior Fellow in Business Economics at The Center for Cultural Leadership.
Jerry has compiled an impressive record as a leading thinker in finance and economics. He worked as an auditor and a tax consultant with Arthur Anderson, as Vice President of the Beechwood Company which is the family office associated with Federated Investors, and has consulted in various privatization efforts for Allegheny County, Pennsylvania. He founded the influential economic think tank, the Allegheny Institute, and has lectured extensively at universities, businesses and civic groups.
Jerry has been a member of three investment committees, among which is Benchmark Financial, Pittsburgh’s largest financial services firm. Jerry had been a regular commentator on Fox Business News and Fox News. He was formerly a CNBC Contributor, has guest-hosted “The Kudlow Report”, and has written for CNBC.com, National Review Online, and The Wall Street Journal, as well as many other publications. He is the author of The Bush Boom and more recently The Free Market Capitalist’s Survival Guide, published by HarperCollins. Jerry is the President of Bowyer Research.
Jerry consulted extensively with the Bush White House on matters pertaining to the recent economic crisis. He has been quoted in the New York Times, The Wall Street Journal, Forbes Magazine, The International Herald Tribune and various local newspapers. He has been a contributing editor of National Review Online, The New York Sun and Townhall Magazine. Jerry has hosted daily radio and TV programs and was one of the founding members of WQED’s On-Q Friday Roundtable. He has guest-hosted the Bill Bennett radio program as well as radio programs in Chicago, Dallas and Los Angeles.
Jerry is the former host of WorldView, a nationally syndicated Sunday-morning political talk show created on the model of Meet The Press. On WorldView, Jerry interviewed distinguished guests including the Vice President, Treasury Secretary, HUD Secretary, former Secretary of Sate Condoleezza Rice, former Presidential Advisor Carl Rove, former Attorney General Edwin Meese and publisher Steve Forbes.
Jerry has taught social ethics at Ottawa Theological Hall, public policy at Saint Vincent’s College, and guest lectured at Carnegie Mellon’s graduate Heinz School of Public Policy. In 1997 Jerry gave the commencement address at his alma mater, Robert Morris University. He was the youngest speaker in the history of the school, and the school received more requests for transcripts of Jerry’s speech than at any other time in its 120-year history.
Jerry lives in Pennsylvania with his wife, Susan, and the youngest three of their seven children.
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