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First Quarter 2020 Newsletter - A Different Kind of March Madness

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First Quarter 2020

March Madness. It conjures up images of office pools, trash-talking and some of the best college basketball played all year.  But 2020 saw a different kind of March Madness as the COVID-19 pandemic spread across the globe impacting the lives of hundreds of millions of people.  As the number of cases began to rapidly grow, and the death toll mounted, social distancing and self quarantine guidelines were put in place in an attempt to flatten the curve and reduce the strain on our healthcare system.  The result was a “self-induced” economic slow-down the likes of which we’ve never experienced as most non-essential businesses were asked to shut their doors.

All month long nervous investors engaged in a near-daily buy/sell frenzy that drove the VIX “Volatility Index” above 80 for the first time since the Global Financial Crisis of 2008, and which brought one of the longest, most robust bull markets in this country to a swift and sudden end. To add insult to injury, the large market swings (both up and down) were reported daily by the media. Even if you wanted to “tune out the noise,” there was no way to avoid it.

March Madness indeed. 

Every bear market (defined as a 20% decrease off the market high) has its own origins that make it unique. Sky-high inflation. The oil shortage. The collapse of the futures market on Black Monday.  The demise of the savings & loan industry. The tech bubble. The depreciation in the subprime mortgage market which triggered an international banking crisis.  Looking back over the last 50 years, no two bear markets are the same. But they do have some things in common – and one is that the causes were fundamentally due to an economic imbalance. 

What makes the current bear market different, is that it was not caused by an underlying financial flaw in the economy.  The catalyst was fear of COVID-19 – a virus that we don’t fully understand, that we have no way to cure, and that we have no way to prevent by way of vaccine.   But what was born from fears of a global pandemic has evolved into something much greater, and the economic picture – which looked encouraging back in February – now looks very different as we grapple with massive unemployment, drying up demand for many goods and services, disruptions in the supply chain, and drastically reduced corporate profits. 

The uncertainty around the virus and it’s longer-term economic impact drove the swiftest decline into bear market territory that we have every experienced: it took just 16 days for the S&P 500 to fall 20% from its February 19th high and within a month it was down 34%.  Compare that to previous bear markets:

1973 – 1974:

  S&P 500 fell 48% in 20.7 months


  S&P 500 fell 33% in 3.3 months

2000 – 2002:

  S&P 500 fell 42% over 2.4 years

2008 – 2009:

  S&P 500 fell 52% over 17 months

There’s a saying that markets take the stairs up and the elevator down. In this case, it was an express.

Compounding the situation further is that the primary tools we do have are social distancing and shelter-in-place orders – and those have brought the wheels of the global economy to a virtual grinding halt until we can get the spread of the disease under control.  How long it takes before we return to “normal” is unknown. Some economists are calling for a sharp rebound in the second half of 2020. Others are suggesting that this economic slowdown could persist for several quarters, and that the recovery will be much slower. It’s not our job to offer economic forecasts, however, as we write this, there are glimmers of hope in the headlines.  Wuhan China – where the disease originated – is back open for business after a 76-day lock down.  Hard hit Italy is seeing a decline in the number of COVID-19 patients requiring ICU beds.  And in this country, social distancing measures seem to be working as reports indicate a flattening of the curve.

This good news also appears to be reflected in markets.  On April 16th, the S&P 500 closed up 27% from its March 23rd low.  Are we through the worst of it? Was that the shortest bear market in history? Only time will tell. But as we recently shared in The Importance of Maintaining Long-Term Perspective, markets have a history of strong recoveries after steep declines; and while past performance is no guarantee of future results, we believe long-term investors will be rewarded by maintaining a disciplined approach.

Fasten your Seat Belts

While normally we don’t like to focus on the short-term – any one day, any one month, any one quarter – it’s almost impossible NOT to dissect the month of March because it was, statistically speaking, unusual.  In fact, for each of the 22 trading days that occurred in March, we could hear Bette Davis utter her classic line from the 1950 film, All About Eve: “Fasten your seatbelts – it’s going to be a bumpy night.”

For starters, the bond market experienced higher-than-usual volatility last month, and daily price movement was as extreme as it gets for this mostly staid market.   Treasuries largely advanced during the month as investors perceived these assets as safe havens, with prices rising and yields falling.    However, prices of both corporate bonds and municipal bonds declined right alongside stocks as investors demanded more yield to hold those bonds to maturity. Longer term bonds and lower credit quality bonds saw the largest price declines as market participants quickly decided that non-Treasury bonds posed much more risk than they had just a few weeks earlier.  Increasing confidence near month end and into April moderated price declines in some markets and reduced daily volatility.    

As for stocks, investors experienced off-the-charts volatility the likes of which we have never seen.   Looking at data from January 1970 to March 2020, the Fama/French Total US Market Research Index had a daily average return of 0.04% and 99% of the time it fell within a range of ~ -3% - +3%.   However, if you look at the month of March, we were in that range only 27% of the time.  Think about that.  Approximately three out of every four days were outside the normal expected daily returns.    

The highs were SO HIGH and the lows were SO LOW that we triggered the circuit breaker (regulatory measures to temporarily halt in trading on an exchange, which are in place to curb panic-selling) 4 times between March 9th and March 18th.  We often compare market volatility to being on a roller coaster and if that’s the case, March was indeed a bumpy ride.  So bumpy, that it caused many investors to consider heading for the sidelines. However, what happens when you try to get off a roller coaster in the middle of the ride? You can get hurt – or if you’re talking about an investor trying to avoid the pain of a down market, you hurt your long-term returns. 


Look at Exhibit 1 and consider a $1,000 investment in the S&P 500 on January 1st, 1970 and what it would grow to if you didn’t touch it for 50 years.   $1,000 invested in 1970 would be worth $121,533 today and that includes the bear market of 1973-1974, Black Monday, Y2K, the Gulf War, 9/11, the Global Financial Crisis and a ton of other scary headlines and scary world events.  But what happens when you start to miss the best day? Or even a handful of the best days? You can see that by missing the 25 best days in a 50-year period (~ 12,600 trading days) you reduce your total return by over 80%.   

How do we know when the best days will be? We don’t. But historically they tend to happen in the middle of some really bad markets.   Many of the best days happened during the Global Financial Crisis.  And five of the top 25 just happened between March 2 – March 17 of this year, and they each came on the heels of a significantly down day the day before. 

It can be tempting to run for the hills when markets drop – especially when they drop precipitously fast.  But it’s important to remember that even though there will be turbulence along the way, staying in your seat, and staying focused on your long-term goals is the best way to ensure that you don’t get hurt.

The Market & Monet

The Impressionist painters of the 19th century were considered by many to be radical because their style, characterized by relatively small, thin, yet visible brush strokes and open composition, deviated greatly from the more academic approach to realistic portraits and still life paintings. Claude Monet was one of the founding fathers of the Impressionist movement, and if you’ve ever had the good fortune to see a Monet in person, you know that his paintings are absolutely stunning… depending on where you stand.  You see, if you get too close to a Monet painting, it can look a little chaotic, and it’s only when you take a step back, and increase the distance between you and the painting, that you can appreciate the beauty of what the Impressionist movement is all about.

The stock market is kind of like an Impressionist painting, and when you get too close i.e. too focused on what’s happening in the short-term, it doesn’t look good. Carl Richards, author of The Behavior Gap, summed it up best with this sketch:


Back in the 1980s, psychologist Paul Andreassen published research on the dangers of too much information.  Essentially his work showed that the more data points investors had, the worse their decision making was when it came to their investments.   Not too surprising given that focusing on the daily ups and downs can trigger our most basic emotional reactions and behavioral biases.

Focusing too much on the daily movements of the market is a bit like standing up close in front of a Monet, and it’s important to take a few steps back in order to realize that wealth is built over the long-term, as illustrated in the following chart.


First Quarter 2020 Asset Class Returns


1st Qtr


1st Qtr

S & P 500


All Country World Index


Large Cap Value


Int’l Large Cap


Small Cap


Int’l Large Cap Value


Small Cap Value


Int’l Small Cap


Micro Cap


Int’l Small Cap Value


Real Estate


Int’l Emerging Mkts


Short Term Income


Int’l Emerging Mkts Value


Intermediate Income


Int’l Emerg. Mkts Small Cap


Short Term Municipal Income


Int’l Real Estate


Intermediate Municipal Income




Fund information from DFA Inc., Vanguard Group and MSCI


Our hearts are with everyone who has been affected by COVID-19. Medically. Financially. Economically. This pandemic has struck without judgement and without regard, and no one has been immune to its impact. We look forward to a time when we can gather together again, but in the meantime stay home. Stay safe. Stay healthy. And take care. 

The content in this newsletter is for informational purposes only and does not constitute investment advice or an offer to buy or sell any security. The information in this newsletter is believed to be accurate as of the time it is distributed and may become inaccurate or outdated with the passage of time. You should contact your financial advisor or CPA professional before making any tax or investment-related decision.  Past performance does not guarantee future results.  All investments may lose money.


  1. 1Q20Newsletterrb.pdf 11/30/2020 3:51:01 PM