Good morning, happy Monday & happy President’s Day!
“Nearly all men can stand adversity, but if you want to test a man’s character, give him power.”
– Abraham Lincoln
My friends, tomorrow marks an important day. February 18, 2020, 5 years ago tomorrow, marked an all-time high for the stock market (S&P 500). Now that in and of itself is not that noteworthy, the S&P 500 hit all-time highs 50 times in 2024 alone.
But let’s rewind the clock 5 years ago. Here’s an article I found by The Week listing the top news stories of the day for February 18, 2020: 10 things you need to know today: February 18, 2020 | The Week. According to their list these are the top 3 stories of the day:
- Virginia lawmakers block assault weapons ban
- Expert predicts China’s coronavirus outbreak will soon plateau
- Boy Scouts of America files for bankruptcy over sex abuse costs
Hum … that #2 item might have been a little off! Yikes!
On that date, February 18, 2020, the S&P 500 recorded an all-time high of 3,380.40 … by March 22, 2022, the S&P 500 would close at 2,237.40 … a staggering 33.8% drop in basically a month (32 calendar days, 23 trading days).
Coronavirus (AKA COVID-19) shocked the entire world and crushed the stock market.
We were scared. We were confused. We felt like the world was coming to an end.
We couldn’t see our loved ones. We couldn’t go to church. Heck, we couldn’t find toilet paper to wipe our butts!!!
Compounding this tremendous fear, we experienced the fastest drop in the history of the stock market … 33.8% in 32 days.
It was truly a scary time, but let’s go back to the day before it all started … 5 years ago tomorrow … February 18, 2020.
If an investor decided that it was a good day to make an investment and put in $100,000 would that have been a bad idea?
Well … 32 days later that $100,000 would be worth roughly $66,200, so it would most certainly seem like a big mistake … a really bad idea.
But … what about 316 days later, December 31, 2020? The S&P 500 closed at 3,756.10 that day … a level 11.1% higher than the February 18, 2020, all-time high.
Let’s think about this for a moment.
If you send $100,000 into your investment account tomorrow, February 18, 2025, and I told you that it would be worth $111,000 on December 31, 2025, what would you do?
My guess is you would say that’s fantastic and be very pleased with a solid double-digit growth in the investment account. (Just so we are clear, this is a hypothetical, for illustration purposes only).
That’s exactly what happened in 2020, but the road to get there was crazy.
If you put $100,000 into the S&P 500 in your investment account on February 18, 2020, and proceeded to take a 316 day nap you would wake up on December 31, 2020 to see your account value of roughly $111,000.
So, after waking up from your 10 ½ month nap, you log into your investment account and say, “Very cool, my investments have done really well … and why is everyone wearing face masks?” 😉
Please allow me a quick but important disclosure: this is a big picture scene I am painting here. You cannot invest directly into the S&P 500, and this scenario ignores dividends, fees, exact allocations, etc. … don’t get too hung up on the details, stick to the big picture.
So, one could most certainly argue, as I would, that investing on February 18, 2020, was not only not a mistake, it was actually a good idea. Sure, it took a hit for a few months, but if we are investors, we are not focused on our account value in a few months. Money we are focused on for a few months belongs in a bank. Money we are investing into the best companies in the world will require patience and time to realize the tremendous growth they historically have provided. This is one of the great lessons learned from this crazy time in human history.
It’s easy to focus on the current headlines, but please allow me this opportunity to remind all of us that investing requires patience, perseverance, and perspective. It was true 5 years ago, it’s true today, and it will be true 5 years from now.
I fully plan on making some additional comments about COVID-19 in the weeks ahead as we mark the 5-year anniversary of this trying time … because the lessons it can teach us are exceptionally valuable. 😊
Thank you for the incredible privilege to serve you and help you navigate these investment waters. Let me know if there is anything we can do to support you.
Make it a great week ahead.