20/20 Reflections

One year ago today, on March 23, 2020, the market reached its COVID-Crash nadir. Anniversaries, such as this, provide an opportunity to reflect on what transpired. Unlike past crises, however, we are unable to do so with the benefit of hindsight. We are reminded daily that the pandemic is not yet over, despite the market experiencing its fastest bear-market recovery in history, which officially ended last August (125 days from the prior peak). Individuals are still required to wear masks while in public, social distance, and conduct video conferences in place of face-to-face meetings. I cannot recall precisely when the feeling of relief hit following the 2008 global financial crisis; but I am fairly certain it happened before the markets fully recovered, a full four years after bottoming in March of 2009.

Indeed, across most measures, the human toll continues to grow. At this time last year, 788 Americans[1] had lost their lives to the then mysterious virus that had reached US shores. Today, that number continues to climb to over 540,000. The death toll is only one way to measure the impact the pandemic has had on our lives. Other factors, such as missed visits with family, the number of hours spent quarantined at home, jobs lost within the service sector, dollars spent by the government, and even weight gained from forgone exercising, remind us of the scope of the disruption caused by the virus.

We wrote a lot during the crisis. Looking back, some of our forecasts were, perhaps, naively optimistic:

• On March 2, we suggested that lockdowns would persist for two-to-three weeks. They lasted months. (In fairness to our view, the US Government originally outlined a similar timeline.)
• On March 13, we likened the potential fiscal response to what occurred during the financial crisis in 2008. COVID relief packages were more than triple 2008 levels, however, and that doesn’t count the recently passed $1.9 trillion American Rescue Plan.
• On March 19, we suggested that longer-term containment efforts could limit equity returns for the year. Our best-case scenario foresaw 30% upside – which today looks quaint! We did suggest that investors might look forward to 2021, in anticipation of stronger earnings growth to justify higher prices, which they did and then some.

With each writing, we urged investors to stick to their long-term investment plan, and, where appropriate, lean into risk to opportunistically capture higher returns. This overall thesis proved true, despite some of the minutia of our prognostications being off. We were guided by our optimism in both the government’s willingness to provide economic support and the competence of the science community to develop medical solutions. We believed that markets would eventually look past the pandemic, and that markets were offering a once-in-a-cycle buying opportunity to investors. In that regard, we were right.

There is a (in)famous investor that has frequently called for a market top during the past several decades. He measures the call’s success rather simply – that at some point in the future, one will be able to buy assets more cheaply than they could today. While his actual investment success has left something to be desired, we do appreciate the simplicity of his benchmark. If we may be so humble as to borrow his yardstick, we will suggest a benchmark of our own that is rooted in the spirit of human ingenuity and problem solving: that at some point in the future, one will be able to sell a diversified portfolio of assets for more than they can today. Centuries (if not millenia) are on our side.

[1] https://ourworldindata.org/grapher/cumulative-covid-cases-region (source Johns Hopkins University CSSE Covid-19 Data)