Is it Different This Time?

Pedro Velasco
Wow, what a couple of weeks we’ve been through. As I write this, two days ago we had the best one-day gain in the US stock market since October of 2008, with the S&P 500 up 9.4% in a single day, and its best three-day run since 1933. However, that’s after a slide of 34%. If you’re feeling whiplash, it’s with good reason. That’s the fastest drop of its size in history.


When the stock market started tumbling in 2008, I had been a financial advisor for 11 years. I had seen some stuff. I saw the dot-com crash and some other market corrections. And I kept the faith for quite a while. The experts I followed were saying all the right things. I was counseling my clients that their long-term money needed to stay invested, that volatility is the price of higher long-term returns, that it’s best to close your eyes and hold on for the ride.

But I had periods of doubt. There were times when I wondered if I was doing the right thing.

If you recall back then people were talking about the end of the financial system as we knew it. Well-known organizations were failing. Exposure to the mortgage and real estate markets was widespread and partly unknown. The risk had been sliced and diced and spread in “innovative” financial vehicles. And the ratings agencies that are supposed to tell us how risky things are, got stuff wrong. Investment markets tanked.

Then we got to the baby-with-the-bathwater phase. There were so many requests for redemption from investment strategies and managers, they had to sell assets to raise cash. And the place to get cash was the assets that were actually doing fine. Supply and demand being what it is, a lot of sellers in the market push down the prices. So the high demand for liquidity caused more asset values to plummet.

Secretly, late at night as I lay awake, I wondered, “Is it different this time?”

We financial advisors were schooled to believe, and to tell our clients, that crises are normal, that market plunges are part of the system, that this too shall pass, and that holding onto your investments is the right move. That the only reason stocks return more than safer savings vehicles over the long run is precisely because of this type of volatility. And in order to experience the long-term ups, you have to ride through the short-term downs.

But back in 2008 and 2009, there were plenty of voices saying, “No no! This time is different. This one is really going to blow everything up.” And even, “You’re a fool if you still own stocks.”

Most days I believed, but occasionally I had my doubts.

What happened? Along came March 9, 2009. A totally unremarkable day by any objective measure. It’s only in hindsight that we know that day was the bottom of the market decline. Since that date through the end of February, the S&P 500 rose 337%! (numbers from JP Morgan Guide to the Markets)

One important thing to remember – the stock market turnaround came before the economic recovery. Stock markets are forward looking and try to “price in” what the collective wisdom expects to happen. I’m sure you all remember the economic recovery was much more low & slow that people wanted, but it was still growth. Plenty of individuals still were in difficult circumstances for a very long time.


It’s OK if you’re worried and having doubts about your investments. Worry is normal. Panic is human.

Of course there’s more to be worried about this time, beyond how your accounts are doing! I don’t have to list out the reasons for worry. As Jason Zweig said in this article in the WSJ, “A market crash is always scary, but this time the fear and panic of huge daily drops are compounded by the dread and uncertainty of a global pandemic.”

If you have a Wall Street Journal subscription there’s a good description of what stress does to the brain. (This is Your Brain on a Crashing Stock Market)  For those of you who do not, here’s the short version: “Your prefrontal cortex, the area of the brain responsible for long-term planning, becomes less active.” We lose access to our higher level reasoning and perspective, so our attention and focus narrow. It becomes really hard to pull back and get some perspective on what’s happening.

In addition, we humans have a negativity bias. A coach friend of mine says we need to have between three and seven times the number of positive experiences to negative in order to operate optimally. It’s fair to say that ratio is being strained right now! She recommends we all be very intentional about bringing in the positive to our daily lives in order to counteract the negative news we are saturated with. (Here’s one! “Takeout” art from the Barnes Foundation in Philadelphia – Watch the Video)

Here’s a great article from my friend Emily Birkin with some practical tips on dealing with worry – Calm Your Fears in 3 Simple Steps.


So what about today? Is it different? Markets have fallen more quickly in part because stock values beforehand were a bit inflated versus fundamentals, for a variety of reasons. Also because of computerized trading which submits many transactions automatically when certain triggers are reached. (High Frequency Algorithmic Trading Programs)

Today is different because we are experiencing economic slowdown and investment declines from a global health crisis as opposed to a financial trigger. If there is a silver lining, at least for the investment markets, it’s that we are very clear on what the problem is today. Back in 2008 there were many layers of complicated issues that were not fully understood for some time.

We are in a time of economic contraction, no doubt about it. And uniquely, it’s intentional – we are trying to slow COVID-19.  It’s almost like a medically-induced coma for the benefit of the patient.  This time, however, the patient this time is the human race, and the “coma” is economic consumption.  Since this is uncharted territory for us, we are unsure of the depth and length of the slowdown.

What comes next?  My guess is more volatility – big moves quickly in both directions.  What we do know is that we will get through this.  We have seen horrific wars, major depressions, & global pandemics before, and each time, we have emerged stronger.  We will get through this too.

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