The aphorism “Hours of boredom punctuated by moments of sheer terror” has been used to describe war and flying (and even baseball, although I beg to differ). The phrase may have originated in the trench warfare of the First World War, and it is a vivid reminder of how sudden violent incidents can interrupt an otherwise fairly mundane and predictable story. When I reviewed the stock markets for the first half of this year, the description came to mind. Here is how the two major North American indexes, the S&P 500 and the TSX 300 performed over the past six months:
Now, most investors would say that a drop of less than 5% for the S&P 500 is no big deal over half a year, nor is the less pleasant but not extraordinary drawdown of 9% for the TSX. But of course it’s how we ended up with these numbers that is the real story, and that is where we find the elements of terror. Here is the list of the ten largest one day point drops in the history of the S&P 500:
Eight of the ten worst days were in the past six months, and five of those drops were more than 5% in one day. The period from March 9th to 18th witnessed a drop of almost exactly 20%. Terror, indeed. But the same six-month period also saw periods of rare exuberance:
No fewer than thirteen of the eighteen BEST days were squeezed into the brief period from March 4 to April 29th, including eight days with gains of more than 4%. What is more, in some weeks, the very best days and very worst days alternated in a crazy display of hyper-volatility. The whole period was enough to give investors whiplash.
Clients who have been with us through earlier periods of market volatility know that we never sell into a falling market, and always resist the understandable and highly compelling urge to liquidate. We followed that course of action this time as well. We did sell some holdings, notably those in the travel and entertainment industry (Hyatt Hotels, Delta Airlines, Walt Disney) that we knew would be gravely injured by the COVID-19 crisis. However, we maintained our equity weighting through the ups and the downs, and most of our clients ended the first half pretty much where they started. If nothing else, the incredible ups and downs once again reaffirmed our strongly held belief that nobody is smart enough to time the market.
We miss seeing our clients and discussing our outlook on the markets and our reasons for buying and selling particular companies. Since we cannot see people in person, we decided to make some short videos that we hope will explain how we are viewing the current unique circumstances, and how we intend to go forward. You can find these videos as shown below.
- Why is the stock market going up when the economy is still so bad? David Baskin
- How are we looking at our portfolio companies in the time of COVID? David Baskin
- Why the big technology companies are must-own stocks for most clients. Barry Schwartz
- Why is the US market the best place to invest in 2020? Barry Schwartz
We would love to have your feedback and, if it is positive, you can look forward to similar presentations in the future.
Finally, I would like to urge everyone to use our Baskin Wealth Management internet portal. There you will be able to review your quarterly reports in a secure manner.. Please contact us and we will set up your access.
David Baskin, President
Barry on BNN – June 15, 2020