March 2009 Stocks fall to lowest levels since 1997

It was March 2nd 2009 and across America, people woke up to the headline, "Stocks fall to the lowest level since 1997 as Dow drops below 6,800.”

The expectations were that it would go even lower and for good reason. More bad news was on the way. At the start of April, the New York Times announced that 663,000 jobs were lost in March in the US alone (1). Later that month, George Soros, one of the most successful investors of all time said US Banks were basically insolvent (2). On May 1st, Chrysler filed for bankruptcy, followed one month later by General Motors. The economic outlook was still bleak in June when renowned investor Warren Buffett said that the US economy was a shambles and not showing any signs of recovery (3).

By March 2009, shares had fallen in value by about 50% and, to all observers, markets were getting worse not better. And they were right as evidenced above. But a strange thing happened. Shares started going up. In March alone, shares as measured by the S&P 500, increased in value by a little over 8.5% (4). Then they went up another 9.5% in April (5) and a little over 5.5% in May (6).

In other words, share prices started to rise before the economy started to recover. They didn’t start to rise when the crisis was in hand. They didn’t start to rise when the banks were clearly solvent. They didn’t start to rise when the bankruptcies had all finished being filed. They didn’t start to rise when the job losses had staunched. No, they started to rise when further economic deterioration seemed a near certainty.

Economist and Finance Professor Dr Robert Arnott put it this way, “In investing, what is comfortable is rarely profitable.” The market environment in March 2009 reinforced the wisdom of these words.

As we look at the current crisis, none of us knows when things will turn around. But one thing we can be sure of, it won’t turn around when the Center for Disease Control and Prevention rings the bell and gives us the all clear! It won’t be when the Central Bank gives a rosy report and starts to raise interest rates again. No, by then shares will have already been on the way up for a long time.

Don’t miss the recovery, and especially don’t miss it waiting to feel comfortable. That’s not likely to be a profitable strategy.


Ben Brinkerhoff
Head of Adviser Services, Consilium

  1. https://www.nytimes.com/2009/04/04/business/economy/04jobs.html?pagewanted=all
  2. http://in.reuters.com/article/2009/04/06/idINN0638646120090406
  3. http://www.cnbc.com/id/31526130
  4. https://www.ifa.com/calculator/?i=sp500&g=100000&s=3/1/2009&e=3/31/2009&af=true&aorw=true&perc=true
  5. https://www.ifa.com/calculator/?i=sp500&g=100000&s=4/1/2009&e=4/30/2009&af=true&aorw=true&perc=true
  6. https://www.ifa.com/calculator/?i=sp500&g=100000&s=5/1/2009&e=5/31/2009&af=true&aorw=true&perc=true