Had you fallen asleep in January and woke up today, you’d probably have a few questions about the virus and think nothing big happened in the stock market. Yet, everything happened.
The first half of 2020 can be summarized by one of the fastest market crashes ever and a quick and confusing recovery. In fact, all but one country saw it’s stock market fall month-to-month from January to February, then again from February to March. The one exception: China. It’s market rose slightly from January to February then fell from February to March. The global decline resulted from the reaction to a worsening situation with the virus.
Then magically, every country’s stock market reversed course and rose in April. Things deviated a little from there.
The virus is still a risk. Some countries are managing it way better than others. Some markets are closer to even on the year than others. And yet, economic data looks dicey at best. There’s a lot of unanswered questions like how big of an impact did the lockdown have on businesses? Heck, which ones will survive? And most important, how much is already priced in?
And somehow, despite all that or maybe because of it, market speculation became a popular pastime. The biggest surprise of 2020 may not be the crash, but the over-optimism and ignorance of risk that followed it.
The first half of 2020 is also a perfect reminder of a few investing lessons. For example:
- Annual returns smooth out the crazy market moves that investors face during any given year.
- Often, the best course of action in investing is to sit tight. Investors need to stay invested to earn that annual return.
- A 20% loss, followed by a 20% gain won’t get you back to even. You’re still down 4%. It’s a common math mistake. It’s why a 50% loss requires a 100% gain to get back to even. You’ll notice this in the table below. It shows why minimizing big investing mistakes is so important.
- Nobody knows with certainty what happens next. Surprises can show up out of nowhere. So you and your portfolio must be ready for it in advance.
- Crashes and bear markets don’t have fixed durations or depths. Nor are they limited to a specific number in a year. We don’t know when it will happen or when it will end.
- Successful investing, in a nutshell, is a series of difficult decisions that often look wrong at the time, but later turn out to be right.
- Market timing is practically all luck. It helps to admit it.
Below you’ll find a table comparing global market total returns for the first half of 2020. I also included the first and second quarter returns to show the stark contrast between the two. Here are some brief highlights:
- Every stock market fell in Q1. All but one saw double-digit declines. Denmark was the exception. The median Q1 return was -27%.
- Every stock market rebounded in Q2. All but four saw double-digit gains. The median Q2 return was 18%.
- But only three countries got back to even and are currently positive on the year.
- Developed markets have faired better, on average, than emerging markets so far this year.
- The U.S. financial sector is about even since 2007.
- The U.S. energy sector has been crushed. The sector is down 41% since 2014.
- If 2020 ended with the same results as the first half, Greece’s stock market would have a -19.7% annual total return since 2006!
- A New Ice Age? – Albert Bridge Capital
- Keep Running! – M. Housel
- Yelp: Local Economic Impact Report – Yelp
- A Quick Survey of “Broken” Asset Classes – Research Affiliates
- A Viral Market Update XI: The Flexibility Premium – Musings on Markets
- Know What You Don’t Know – Evidence Investor
- Financial Markets Are No More Uncertain Today Than They Were Last Year – Behavioral Investment
- A Short History Of The Bear Market – E. Chancellor
- Jim Simons: Life Lessons from the World’s Smartest Billionaire (video) – Into the Impossible
- Growth Score: Partha Mohanram on his glamour G-Score (video) – Acquirers Podcast
- Annie Duke on Poker, Probabilities, and How We Make Decisions (podcast) – Conversations with Tyler
- Global Wealth 2020: The Future of Wealth Management – BCG