The Covid Crash was one year ago. What did you learn? What would you have done different? On this podcast, Karl discusses the tremendous change in the market we’ve experienced in just one year.
Hey, good morning, everybody. Welcome to the podcast. This is Karl Eggerss, and this is Creating Richer Lives, the podcast. Just a reminder, our telephone number, 210-526-0057, or if you don’t want to remember that, you can certainly remember creatingricherlives.com. creatingricherlives.com.
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We have all kinds of things, television interviews, and they’re all very topical. You can certainly select a topic, whether it’s retirement, tax, estate planning, and it’ll filter down for you those various topics. Make sure you go check that out. There’s also a way to subscribe to Covenant U, which is our educational piece that’s sent out every Monday afternoon. All right. Well, it was one year ago …
One year ago. Sometimes it feels a little faster that it’s gone by pretty fast. Sometimes it feels like a long time ago, but one year ago was the horrific drop in the stock market and the subsequent bottom in the stock market as well, so I wanted to spend a little time today talking about this past year, and specifically in that moment. Remember, what we’re trying to do here is not only bring some ideas to you, help you through, really thinking about not only your investments, but financial planning, of course, but improve, improve on our psyche because that was a real test, a behavioral finance test going through that. You can tell people all day long what that felt like, but until you actually go through it yourself with real money, real retirement dollars sitting there, fluctuating that much, until you go through that, it can’t explain it. In fact, somebody this week told me they had done some Forex trading, but on paper, and they made a lot of money, and then when they did it for real, they didn’t do so hot, and that’s very typical, right?
Very, very typical that it’s just easy when you’re doing paper trading. It’s easy to say, “Why? I would have bought in that situation. I wouldn’t have panicked out.” Until you have real dollars and you’re seeing those dollars vanish, at least temporarily vanish and it feels permanent, you don’t know what you would really do, and so for those of us that went through that with our own money, which most of you did, you now have that as another event on this long investment road, this investing road that you’ve been through, perhaps the 2008 financial crisis.
You’ve been through the dot-com bubble. You may have even gone through the 1987 crash, and now you’ve gone through the pandemic crash, which is what it was. It was a crash. For those that are still saying, “I think this market’s just going to go down. It’s going to crash at some point.”
It just did a year ago. If you weren’t paying attention, it already crashed a year ago. Maybe not for the reasons you thought, but it did crash, so we’re going to talk about that. Before we do though, let’s talk briefly about how this week went. It was all really about the Federal Reserve and what they are or are not going to do, and you have a poker match going on right now between the market is saying, “We’re seeing some inflation.”
“We’re seeing this reopening trade. We’re seeing this happen,” and they’re selling bonds and pushing interest rates up, and the Federal Reserve is saying, “We’re not going to raise rates for some time now, so don’t look to us to be raising rates. We’re going to stay very accommodative,” and the market’s saying, “We’re not sure if we believe you,” so you have short-term rates staying very low, you have long-term rates, the 10-year Treasury and so forth going up and reached 1.73%. Now, remember, a year ago, in March of 2020, it was down in the 0.5% range, a half a percent, so it’s more than tripled from half a percent all the way up to 1.7. Some people see two.
Certainly one and a half was a line in the sand. I thought it could pause there. It didn’t it. Well, it may have paused a little bit, but it kind of has blasted on through. Bond’s still very, very oversold, meaning the prices have gotten beaten up pretty good, so probably looking for a bounce still.
There’s a lot of forced sellers. You hear me talk about that all the time, about forced sellers in the stock market. When you see the stock market falling, it feeds on itself because those that are borrowing money to buy stocks have margin calls. Could be hedge funds, could be individuals. Who knows, but they get called and say, “Hey, you need to put more money in, or you need to sell some positions to cover your margin call,” and so what they do is they oftentimes sell stocks, and so it feeds on itself.
Selling begets more selling, and it’s the same thing in the treasury bond market. This is a world market, right? There’s lots of people buying U.S. treasuries for one reason or another, and they’re being forced to sell. What’s happening is it’s pushing bonds lower and lower, so bonds, again, if you are somebody that owns bonds, it may be time to rebalance. Look at your portfolio.
Have your stocks done well in the last few months and your bonds have not? This is the time to maybe rebalance, or at least examine that and do that. That’s the discipline. If you say, “Well, I don’t want to buy more bonds,” well, of course you don’t. That’s the discipline of rebalancing, is to force yourself to do that. You have an allocation and you want to stick with it, you have to rebalance at some time, and so that’s really the poker match going on between the fed and the market.
Really, the thing that got hit this week, believe it or not, I mean, even though the stock market was fairly flat … I mean, the Dow Jones was down about a half a percent this past week. You did see the Volatility Index actually drop a couple of times, but it seems to have a floor around 20. Have you noticed that? Remember, the ceiling used to be around 30.
Every time the VIX would spike up in the last few months to 30, it was a good buying opportunity. Well, it seems like every time it goes down to around 20, it’s a good selling opportunity if you’re into short-term trading, so it’s hovering around 20. It was flat this week. Finished the week around 21, and some of your outliers this week, interest rates, again, moving higher as I mentioned. Bitcoin was up about 6%. Got to mention that, of course.
Gold Miners did well this week. Homebuilders, interesting that they continue to move higher even though interest rates are going up. You would think, “Well, if interest rates are going up, people are going to not buy as many homes.” Well, they could be rushing to buy homes, right? The people are fearful, rates are going up, so they’re rushing to buy homes, refinance, maybe upgrade their home while they still can afford it, so that could be while those are going up, but those were some of the things that kind of moved this week. Not a huge movement out of some areas.
On the downside, we saw bigger movement. Really, energy was the area beat up the most, of course. They had been a little extended, and a drop in oil prices is going to do that, and retail stocks also dropped about three and a half percent this week, so a lot of different areas down anywhere from one to two for the most part, but here’s what I want to talk about today is, again, a year ago. Do you remember the speed at which the market was selling off? I wrote an article back then called This Generation’s 1987, and the idea of that article was to really point out that this generation of investors may not have been investing in 1987, and it was a crash, right?
It happened over one day basically. This wasn’t much different. It just happened over a few days, but it wasn’t much different. I mean, for the most part, from high to low, the stock market fell about 35 to 40% in literally 25 trading days. Some of those, I mean, you saw a drop within eight trading days about a week of 18%.
You saw some significant downward pressure, and you remember, March 25th, where Bill Ackman came on. This was March 25th of 2020, came on CNBC. I think the Dow was down 3,000 points that day, and he said, “Hell is coming. Hell is coming.” Right?
He was criticized wildly for that to kind of add to the fear. Influential person, add to the fear, and was he talking his own book? Was he trying to push the market lower so he could go in and buy stocks? Don’t know, and of course, after the fact, as the market was bouncing, came the, “Well, this is what I meant,” and people had excuses for it, but that’s what he said. I remember watching it, “Hell is coming,” and it didn’t come, okay?
It didn’t come and things started to bounce, and they bounced pretty violently, and then you kind of had that feeling, “Where’s the second drop?” Right? “Was it a dead cat bounce?,” and we never got it. We never got the second drop, and it’s very common. You go back to 2008, we saw a second drop months later.
After we bounced in March, April, May and June, a lot of things from that point in June … Many of you can attest to this. I’ve had conversations with you about your own portfolio. Many of you know that from June until about November, a lot of things started to go back down a little bit and flatten out and kind of reset. If you look at some of the … Really, cruise lines and the hospitality, the things that you would expect to be struggling were struggling.
They had the initial bounce, and then they just kind of languished. Meanwhile, technology didn’t. It got stronger in June, July and August. What changed was, of course, November, once the vaccines were announced, the first one being Pfizer, around late October, early November, we started to see that, and that’s really to me, when the market changed, character was at that point, it was light at the end of the tunnel, things were going to start opening up and hence, commodities started to do better, small caps, industrials, all the things that would benefit from an opening economy, including cruise lines, airlines, movie theaters, and the speculation started to even build up in the stock market, but we didn’t get a second chance to buy that dip. Many people thought we would get another chance to buy that dip, say, “Well, when it comes back down, then I’ll buy,” and it never did. The market just pretty much continued higher.
It was a good lesson for people that maybe abandoned their long-term plan, that you can’t really get that money back per se. It was a good lesson for people who bought the dip and jumped in when there was blood in the streets, as Warren Buffett would say. Rewarded for that, and I would hope for the most part, and I’m not talking about changing some of your individual positions, whether they’re funds, ETF, stocks, but your allocation to cash, stocks, bonds, did you make dramatic changes to that or did you kind of stay the course? If you stayed the course, you were rewarded for doing that, and if you rebalanced, as I’m suggesting now, relative to bonds and stocks today, March of 2021, you’re rewarded for doing that. If your stocks were becoming too small a portion of your allocation, you rebalanced and did buy the dip as hard as it was, because remember, we’ve seen various crashes over the last several decades.
None like this, right? What was interesting about this one, of course, was that the economy just stopped. It wasn’t a financial crisis. It was a, there’s no demand for goods or services. We didn’t need it.
We’re sitting at home. The only thing we needed was toilet paper apparently. Toilet paper, Netflix, right? The toilet paper, Netflix and plenty of coffee. I did drink a lot of coffee during that time, looking at charts, and it’s very busy time, right?
It was a scary time for all of us. Very, very scary time, but it made me think about the fragility of our supply chain, which we still see somewhat fractured today. It made us value, really, the important things in life and relationships and how much we missed being with people physically, not getting that physical hug from our parents, our brothers and sisters, maybe even our kids. It was a challenging time, and it caused a lot of stress from all kinds of reasons and it added fuel to the fire, that your portfolio was going down, right? It was very, very stressful time, but there was light at the end of the tunnel, and as we worked through it, the market started to heal a little bit at a time and certain sectors did better than others, but this is pretty amazing.
I mean, if you look back now, hindsight, of course, and kind of looked through some of the big outliers, what’s done well since that time, you think about the bottom. This isn’t the exact day, but the Dow Jones, up about 70% from that time. It was sitting out. I don’t know the exact low that day, but we’ll call it somewhere around 18,000 or so. We’re sitting at 32,000, so 70% gain.
The S&P about 70%, but the big ones, the number one, Bitcoin, 656% since that time. That’s the GBTC, which is the Grayscale Bitcoin Trust ETF. You know what’s in second on my list here? It’s metals and mining. Steel, the steel ETF, up 182%, small caps, up 124%, silver, gold miners, kind of interesting.
The NASDAQ, I mean the NASDAQ, up 91% during that time, and it was up higher, of course, but it’s pulled back here recently, and you can go on down the list, of course. The other ones, retail, and that’s what’s fascinating about this crisis we had, is that retail, up 225%. Why? Because we had the ability to keep consuming, and for those that had jobs, we were told to stay home, but we kept working and kept earning a paycheck, and for those that didn’t, they got paid to stay home, right? Unemployed people were paid to stay home.
Some of them made more staying home than at work. The government said, “We need to make sure we keep people in place,” so people kept consuming. They kept buying stuff. Why? Because of technology.
We had the ability to do so, so kind of interesting to see that. Of course, homebuilders did very well during that time and home construction. People started to use the money that they did have and said, “You know what? I’m going to spruce up this office.” What did interest rates do?
Interest rates were very low at the time, of course, and so people were borrowing money to do that, people were moving, locking in the low interest rates. All of that came into play. Now, what’s down from a year ago until now is volatility, of course, is down from a year ago. We know that. I mean, volatility at one point, the Volatility Index was up in the 80’s and it’s at 21 now, so it’s come crashing down, but long-term bonds, while they were a great place to be for most of 2020, they’ve been a rough place to be for 2021, but the dollar’s gone down. You may say, “Well, who cares?”
“How’s that affect me?” Well, it affects your foreign investments. I’ve been a big bull on emerging markets for a long time, maybe too long, and if you look, especially since November, the emerging markets have done very well and foreign markets have been outpacing the domestic markets. They’re cheaper, unloved and the dollar’s going down. Those are all good things for emerging markets, but the dollar has gone down.
There’s not many things that are down, but there’s things that have certainly underperformed. I mean, gold, gold hasn’t done well, even though there’s still plenty of people trying to sell it to you on television. It still hasn’t done well. Now, if you’re wondering, “Why the Bitcoin?,” and people ask me sometimes about the … There’s a lot of talk about the devaluation of the dollar, and I say, “Look, the dollar’s been devalued.”
If you’re around in the 1800’s, a dollar then only buys a nickel worth of stuff today, so it’s not anything new. Stocks certainly help. Gold has held its value, but not near what stocks and bonds and real estate have done. Not near. Is Bitcoin going up because of the government debt getting out of control?
Perhaps. I think it’s too early to call, but it certainly has worked for that. Certainly has worked for that the past year, but it’s been the biggest … I mean, the Bitcoin index itself, I mentioned GBTC earlier, the index itself is up about 800%, so you’ve actually seen an underperformance in the ETF relative to the actual crypto itself, sitting at around 59,000. It’s been quite a year, but again, the point of this is, what did you learn from that?
I can tell you the mistakes I made or the mental gymnastics I went through versus the good stuff that I did, and examine that, and be honest with yourself, right? Be honest. Not all of us did anything perfect because we hadn’t dealt with that particular situation before. We dealt with a valuation bubble in the dot-com bubble. We dealt with a financial crisis and the banks on the brink of failure, but we hadn’t dealt with somebody turning off like a spigot, turning off the economy, and just shutting down the demand side. Now, again, it wasn’t all demand because as I mentioned, retail was doing fine, but services went away, and people buying suits went away.
They were instead sitting around in Crocs and doing video conferencing. It was just a very different thing that we saw, and hopefully, we never see that again, but regardless. Forget why it happened. Forget why it happened. As I’ve said, at the end of the day, you’re buying, whether through a mutual fund or not, you’re buying companies with profits, and when they’re cheap, you buy them, and when they’re expensive, you lighten up on them and you rebalance, and that hasn’t changed in any of these instances, 1987, 2008, the dot-com bubble in 2000, of course, and March of 2020, has not changed, but are we all surprised that the market is where it is today? Yes.
I don’t think anybody, if they’re honest would say, “We would be back above where we were before this started this quickly.” Right? I mean, you have to be honest and say, “I can’t believe we’re at that point. I knew it would bounce, but at that point?,” but remember, what’s happening here is that we do have a vaccine, plural, vaccines that came out in nine months. I mean, it’s fascinating how quickly that happened.
That happened ahead of schedule, so stocks were pricing in the economy being shut down for longer, so when it wasn’t, they bounced. Then, you had massive stimulus, bill after bill, rescue plan after rescue plan, tax breaks, stimulus checks, dropping money out of helicopters. I mean, all those things are things typically the stock market loves, so you had still some consuming happening, so retail is doing okay during this, hospitality’s not, but retail is doing okay, housing market’s doing okay, the banks are fine because it’s not a financial crisis like back in ’08. The fed’s saying, “We’re not lowering rates as far as we can see,” and they start buying bonds, like they’re telling you what they’re doing, so you put all that in a blender and it’s like, “How could stocks not go up?” It’s just how fast and how persistent and how quickly they did to recover has been pretty amazing in the last year.
It’s quite fascinating to think back when I remember day by day specific things. I have a pretty good memory, and so I remember specific days, I remember who was on TV, I remember specific stocks doing specific things. That’s just the way my mind works, and it’s fascinating to see those same things and to think fast-forward only 12 months. Even the movie theaters surviving, right? It’s, I mean, I remember thinking, “They’re not going to survive.”
How could you keep people out of the theaters for a year, for the most part, and how can they survive at all? They’ve survived and they’re going higher. Now, you can argue the valuation doesn’t make sense on some days. I’m not getting into that now. I’m just saying the fact that they survived.
Some of these companies did survive and are back on track. It’s amazing, so I do want to hear from you and you let me know kind of what your thought process was. Were you aggressively thinking that, “Boy, these are bargains”? Were you thinking that it was the end of the world coming? I really do want to know what you were doing and thinking at that time and really reflect back on that, and maybe you don’t even want to remember it.
It’s like a post-traumatic situation where you kind of block it out, but it was also fast. That was kind of interesting too. Some people, and that’s, I saw this during ’08, they … More so this time, it happened so quickly, that if you didn’t look at your portfolio for a couple of quarters, you may have missed some of it and saved yourself some stress, but I would imagine people had a lot more time on their hands to look at things, and again, focusing on the long-term, and it sounds cliche, but this is a great example of it, right? This is a perfect example of focusing on the long-term has paid off once again, once again.
I hope you, I was going to say enjoyed that trip down memory lane, but it’s kind of painful for a lot of people in the market. I’m not talking about out of the market because we all dealt with a lot of different things, but in the market, it was even very painful and very interesting to see, and again, we need to learn from it. What did we do wrong? What would we do over again? What would we do differently next time?
Let me know what you’re thinking, what your thoughts were, and share the experience. Creatingricherlives.com. Again, if you need our help, 210-526-0057. Hey, you guys have a great weekend. We’ll talk to you next week. Take care.
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