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COVID-19
3/20/2020

​Recent market madness: Have we been here before?


“It’s different this time” is a phrase that is sometimes characterized as being very dangerous words when it comes to investing. However, if we compare what’s happening today in light of COVID-19 to what occurred in 2008, for example, “it’s different this time” can perhaps be seen in a positive light.

As is always the case when trying to make sense of current and possible future scenarios in the markets, keep in mind that the past does not necessarily predict the future. Nonetheless, it can be useful to look at how investors and markets have behaved in past market downturns to try to understand how they’ll react in current and future downturns.

For those of us that were in the markets in 2008, for example, do we remember our emotional state when we saw our portfolios drop by significant amounts in a short period of time? For those of us that were invested in the CSS Balanced Fund during 2008, do you remember that the Balanced Fund was down 25.55% at one point during 2008?  

The Balanced Fund went on to post a negative 18.57% return for the year. However, it ended 2009 with a positive 17.34% return for the year. How many of us moved money from the Balanced Fund while it was down in 2008 only to regret that decision later when the Balanced Fund recovered more quickly than we were able to move money back into it? Our own behaviour is one of the greatest investment risks we face and is why CSS does not recommend engaging in market timing activity.

You may think to yourself, “it’s different this time”. And it is. Through 2007-2009, the world was facing the very real prospect that the entire global financial system might collapse. The 2007-2009 period is referred to as the Global Financial Crisis (GFC) for that reason. Today, by contrast, we are facing a global pandemic and we are rightly worried about a total health and economic collapse. 

We point out the GFC as that is likely the most prominent bear market in our minds because of its relative recency. The Tech Bubble (2000-2002) is another bear market that many CSS members will remember. The following chart of S&P data provides some perspective on how the current situation compares to past market declines (current scenario is in red):


  • Currently, the S&P is down about 30% from its peak

  • The average post WW-II bear market has resulted in a 31% peak-to-decline

  • The tech bubble (2000-2002) and financial crisis (2007-2009) were especially deep

Source: Mercer


So, on the one hand, it is different this time. It’s a pandemic rather than a tech bubble, financial crisis, oil price shock, or dramatic increase in interest rates and inflation but what is the same is that there is extreme uncertainty about how the current situation is going to play out; just as there was extreme uncertainty about how things would play out during the GFC. Indeed, every great downturn we’ve experienced in the past has been characterized by extreme uncertainty. What is also the same about all of these past bear markets is that they recovered, although each of the recoveries took place over different timeframes. 

  • The current downturn is unusual in its speed (peak-to-decline YTD) is only 3 weeks

  • The median bear market has lasted 150 days

  • The tech bubble and financial crisis bear markets were both very long

Source: Mercer



The bear markets discussed above saw approximately 31% declines on average and lasted a median of 150 days. The last part of this picture considers how the S&P performed after the end of the bear market. The image below shows the performance of the S&P in the 12 months following its trough. Of note, the average 12-month return was approximately 40%. This highlights the importance of maintaining a long-term view when we encounter significant market downturns like the current one.


What about the CSS Balanced Fund? Looking at how it behaved in the 2007-2009 period is insightful. The maximum decline in value the Balanced Fund experienced during the period was 25.55%. During this period, the Balanced Fund price bottomed at $9.44 on March 9, 2009 and recovered to its previous high point by November 3, 2010, a relatively short timeframe for a long-term investor. 


Looking at how the Balanced Fund has performed over a longer period of time is also insightful. If we look at the past 25 years (1995 – 2019), which captures both the tech bubble and financial crisis, we can see that historically the Balanced Fund has recovered quickly from years where we encountered negative returns. Again, this doesn’t guarantee that it will recover this time but does provide us good reason to expect it to do so.



CSS, with the counsel and assistance of the global investment professionals we work with, takes great care to construct our Balanced Fund with a long-term view in mind. We know markets will go through ups and downs like we are experiencing now so we build in an appropriate level of diversification, for example, in the fund to endure these market movements over time.

Can we guarantee that the Balanced Fund will recover from the current market decline? No. Can we guarantee it won’t decline further than it has now? No. The simple fact is that nobody can provide certainty about future events. When you hear the investment community talk about the risk and reward of investing, we are currently experiencing the risk part of the equation.  

So, is it different this time? Yes and no. We’ve certainly seen this sort of investor and market behaviour in the past but for different reasons.

It is different this time because we’re dealing with a global pandemic that has a real probability of manifesting into a global slowdown and recession. In fact, we may well be in a global recession already but won’t know for sure until the data becomes available to confirm it. 

It’s not different this time because we are dealing with extreme uncertainty that has caused global financial markets to decline precipitously in a short period of time. As with past markets of this nature, nobody knows how long the impact will be felt or how long it will take markets to recover to their previous highs.

Long-term investors may be wise to view current events through the lens of past experience. Past experience is no guarantee of what we may see in the future, but it can certainly put current events in perspective. Keep in mind that even recent retirees have long investment horizons. Barring no known health issues, those who retire in their early sixties very likely have another 20 – 30 (or more) years to invest.

Those with a shorter investment horizon may want to discuss their situation, and if that’s you, we encourage you to contact one of our Pension Plan Consultants.