This week marks the anniversary of the bottom that the market hit on March 23, 2020 and the subsequent birth of the new bull market. The memories are vivid, and it feels like it was just last week. Despite how much Covid slowed down our lives, the year still managed to fly by. In one short year, we have gone from all out panic to irrational exuberance. As they often say, “what a difference a year makes”.
Bear markets and financial crises always present opportunities to learn. A lot of the lessons you learn are reminders of what you already knew. We construct portfolios with risk management at the forefront in preparation for the time when the market goes through a bad cycle. We are all aware that markets don’t go up in a straight line and that market drops are part of investing. Unfortunately, that doesn’t make it any easier when you’re living in the moment.
By this point in the cycle where the market lost over 33% of its value in one month, there were feelings of exhaustion and doubt. It is normally around the time where you begin to question everything that you are getting close to the bottom. This time was no different. The bottom came and went in what felt like the blink of an eye making it the fastest bear market in history. However, it didn’t come without a lot of doubt. The talking heads spent the better part of the next 6 months calling for a retest of the lows. It was another reminder that nobody really knows what the market is thinking, and that financial forecasts are often terribly inaccurate.
One year later, we have a new set of worries. Has the market come too far, too fast? Is the euphoria in the market the beginning of a bubble? When will life get back to normal? The list goes on. Most of these concerns are being raised by those that have been calling for the market to reverse course the whole way up. Regardless of that, you can’t deny the unfathomable change of sentiment as the majority of investors have forgotten about those painful feelings that we were experiencing last March. The reality is that it won’t be the last bear market that long term investors live through.
If you’re a regular reader of our content, you know that we don’t make forecasts. We choose to focus on what we can control and accept that markets are unpredictable. We have no say in what the market is going to do next week, next month or next year. We can, however, make a plan and commit to it. While having a plan and a diversified portfolio doesn’t fully insulate you from market downturns, it certainly makes times like last March more tolerable. No matter what the next year brings, the disciplined approach should lead to better outcomes over the long run.