May 04, 2022
Over the last decade, the United States went on an unprecedented and record-breaking bull run. The 2009-2020 bull run became the longest-lasting stock market rally in history. During that time, major indexes such as the NASDAQ 100 rose over 500%. Aggressive investors multiplied their money many times in even the most conservative investments.
A popular saying online is that “stocks only go up.” There is some truth in that meme’d saying, but the path that stocks take to rising is not a straight-forward one. Markets are temperamental and can be affected by events in the political, social, and economic sphere; temporarily scaring investors off, causing markets to dive. One of the examples which has become so emblematic of the market’s temperamentality is the COVID-19 correction. The start of the COVID-19 pandemic was the perfect storm for a market selloff.
2020 crash & stock market volatility
During 26 trading days – spanning February 14 to March 20, 2020 – the NASDAQ 100 dove 27.3%. One of those days, March 16, became the worst single-day loss in the history of the 36-year-old NASDAQ 100 as markets fell 12.32%. Other indexes experienced similar falls, with some finance-types drawing comparisons to market events such as Black Monday from the 1987 crash and Black Friday from the 1929 crash. A correction like this is relatively unprecedented in the span of history. Of the twenty largest daily percent losses in market history, three of them happened during this correction. The combined losses from those three days (Mar 9, Mar 12, and Mar 16) were -29.04%.
The COVID crash, and subsequent events throughout 2020, didn’t just contribute to some of the largest daily percentage losses in history. In fact, it also contributed to many of the biggest gains. For every day that investors aggressively risked off, there was an equal day where investors bought in. It represents a sort of bizarre “call and response” from the markets – one has come to paint the picture of 2020’s profuse market volatility. Take March 12 and March 13 for example. On March 12, markets posted one of their largest daily point losses in history – falling 9.99%. The following day, March 13, markets rose 9.36%, nearly erasing the previous day’s gain. As it would turn out, there are nearly a dozen instances of this happening during the rout. While stocks primarily moved downward throughout February and March, 57.3% of trading days in 2020 were to the upside.
Stimulus stock market
Of course, investors who were attentive to what was going on during this time know some of the peculiarity of what happened next. In the weeks after the run, stimulus checks were sent to retail investors. In some ways, the “dumb money” outsmarted some of the most intelligent, seasoned investors. Many retail investors would end up investing in biotech, vaccine companies, airlines, and cruise companies. Warren Buffett prominently bought shares in a handful of these players, but decided to sell them just months before retail bought them, helping push them upward to outperform the market.
The story of the COVID crash is the story of market volatility, the start of retail’s increased prevalence in markets, and the rise of interest in stock-picking and thematic plays. However, a lesser-discussed element of the crash is the millions of investors who took the impetus to buy the dip. They saw this black swan event as an opportunity to buy up equities at discount prices, perhaps assuming that the government would undertake an aggressive campaign to stabilize the markets through stimulus as they always seem to do. Some might have been lucky, but in retrospect the investors who were crazy enough to “go long” won big. The NASDAQ 100 hit its lowest point in the correction on March 16, 2020. A year later, the investors who bought that dip have doubled their money.
What happens now?
A year out from the crash, markets are starting to fall again (albeit, not as aggressively) in an eerily familiar fashion. Warnings from prominent investor figures about the consequences of unchecked government spending and stimulus are not falling on deaf ears. The prices of almost all assets – stocks, home prices, cryptocurrency, and alternatives – are at record highs. Concerns about inflation are heating up, mystifying investors on what exactly to do. It’s untold what might happen next, but some investors might find peace-of-mind in the strategy that last year’s “buy the dip crowd” employed: go long.