While there are many similarities and consistencies, each bear market is different too. In my last column, “It May Be Helpful To Take Notes During The Bear Market,” I shared some of my observations about the Coronacrash and past bear markets. I have a few more today.
We have had some clients concerned about the markets and a handful that were approaching panic. That didn’t surprise us. The unprecedented shutdown of businesses and economic activity coupled with a spectacular decent in stock prices was bound to disturb a few people enough for them to question if they could handle what could come.
What did surprise us was that the nearly panicked were greatly outnumbered by the number of clients that were anxious to rebalance. Their urgency to buy was a stark contrast to the resistance to rebalancing we experienced during the 2008 financial crisis. That resistance has been a significant driver of our messaging since 2009. We have been regularly reminding clients that market drops are a frequent occurrence, can happen at any time and that when drops are severe enough, we will be looking to rebalance, not sit on the sidelines.
While I believe our messaging contributed to the increase in buyers within our clientele, I think another influence was in play that has nothing to do with us. Client reactions to this Covid-19-driven decline remind me much more of the 2000-2002 bear market than 2008-2009.
Given how odd these times are this may seem strange at first reading, but the nature of this crisis is to a degree, relatable. For the most part, people understand why the market would react negatively. The need to flatten the curve forces business to curtail operations or shut down and that can’t be good for finances. That makes sense to people just as the bursting of the tech-stock bubble and the reaction to the terror attacks of September 11, 2001 made sense on some level to them. These are events that should cause a reaction.
More importantly, in both cases, people could envision a point in the future at which we were past the problem. No one knew then and no one knows now how long it will take, but most people seem to have faith that we will get through the crisis in time. In 2008, that was not the case.
The financial crisis was a mystery to most clients who had an entirely new language of terms thrown at them like “mark-to-market accounting” and “collateralized debt obligations.” I had a client call me in early 2009 to ask me what I thought about the TED spread.
I responded, “Bob, I hate to answer a question with a question, but do you even know what a TED spread is?”
He replied, “No, but the guy on TV says its critical if we are going to get out of this depression.”
I haven’t had a conversation anything like that this time. Since the 2008 financial crisis, we have incorporated education about the financial media into our processes and messaging. For several years now, our firm’s motto has been “A sanctuary from the noise”; I think it has helped a lot during this mess.