As an investor with more than three decades of experience, the past 16 months stand out in my career as both intensely painful and incredibly instructive. On or about March 23, 2020, the Standard & Poor’s 500 Composite Index and MSCI All Country World Index hit bottom, establishing the fastest bear market in history as the COVID-19 pandemic spread across the globe.
Last week, in stark contrast, equity markets hit new record highs, bringing us full circle from the depths of 2020 to the heights of 2021. Given these remarkable milestones, I thought this would be an opportune moment to share some of my learnings from this most unusual time in history.
I’ll start with a brief summary of my mindset as we entered 2020. In late 2019, I felt confident that the markets were well positioned for a period of strong returns. Inflation and interest rates were low and looked likely to remain so. Banks were eager to lend, and companies seemed willing to invest in productive capacity again — as opposed to share buybacks and questionable acquisitions.
True to my beliefs, I entered 2020 invested as suggested above, with little cash and plenty of cyclicality reflected in my largest holdings. In less than three months, as the global economy came to a virtual standstill and fear gripped the markets, my pro-cyclical positioning looked problematic to say the least. But context is important. And to understand that, it helps to understand my investment style.