Surprise finish: did 2020 see the biggest reversal in market history?

Several years ago, track and field fans witnessed the kind of finish that’s rare even at Eugene, Oregon’s legendary Hayward Field. The event was the women’s 3000 meter steeplechase, a grueling middle distance race that includes the added challenge of five 30 inch high wooden barriers. One of which requires the competitors to land in shin-deep water.

This early summer race featured several of the nation’s top high school runners competing alongside collegiate athletes and Olympic hopefuls.

As the runners took off for 7 ½ laps, the capacity crowd hoped their cheers would inspire the athletes to do something remarkable. They were not disappointed.

Though the elite runners had set a fast pace, one of the high school competitors was not far behind. Until disaster struck. With just over two laps to go, as she was landing in the water pit, a runner behind her accidentally caught the back of her foot. The girl stumbled forward, nearly falling face down in the water while her left shoe came off.

A friend, who was at the race, said it would have been completely understandable if the young woman had simply stepped off the track. It was a tough break. Everyone could see that the race was over for her.

But she didn’t agree. Walking out of the water while quickly untying her shoe, she slipped it back on, retied the laces, and took off after the pack. Seeing her determination not to quit, the crowd roared its approval. Barrier by barrier she began to gain on the field, passing runners who’d been trailing the pack.

Her sprint to the finish brought the capacity crowd to its feet. She didn’t win the race (world-class runners are tough for a teenager to beat) but she did run the fastest woman’s steeplechase by an American high schooler to that point in the year.

Even after stopping mid-race to put on and tie her shoe.

In 2020 the stock market did something just as unlikely. After suffering dramatic losses in March (at that point, down 30% year-to-date, 34% from the recent high) it climbed back up to finish the year with double-digit gains.

Just how big a swing was it? Ben Carlson, writing for A Wealth of Common Sense, looked at the biggest drops and recoveries since 1928. The nearly 34% drop gave 2020 the 8th worst maximum drawdown within a calendar year. But by ending December nearly 14% in the positive, last year has gone down in history as the worst intra-year drawdown that finished the year with a positive return.1

Most investors would agree that this kind of movement seems a little insane. To this Carlson says, “The stock market can look like a raging lunatic in the short-term but that doesn’t mean you have to invest like a raging lunatic as well.” He suggests that sitting on your hands and not panicking, even when stocks are down big, remains one of your best investment strategies.

As that steeplechase reminds us, things might look bad in the middle of the race. But all that matters is the finish.

View the article here:


The views expressed herein are exclusively those of Efficient Advisors, LLC (‘EA’), and are not meant as investment advice and are subject to change. All charts and graphs are presented for informational and analytical purposes only. No chart or graph is intended to be used as a guide to investing. EA portfolios may contain specific securities that have been mentioned herein. EA makes no claim as to the suitability of these securities. Past performance is not a guarantee of future performance. Information contained herein is derived from sources we believe to be reliable, however, we do not represent that this information is complete or accurate and it should not be relied upon as such. All opinions expressed herein are subject to change without notice. This information is prepared for general information only. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. You should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. You should note that security values may fluctuate and that each security’s price or value may rise or fall. Accordingly, investors may receive back less than originally invested. Investing in any security involves certain systematic risks including, but not limited to, market risk, interest-rate risk, inflation risk, and event risk. These risks are in addition to any unsystematic risks associated with particular investment styles or strategies.