Stock Market Lessons from 2020

"We are more often frightened than hurt; and we suffer more from imagination than from reality."

~Lucius Annaeus Seneca

For the longest time I’ve wanted to write down everything I learned so far in 2020 so I could refer back to a blog post when the market inevitably goes haywire again. The problem was I didn’t know how to begin, I needed something to jumpstart my thoughts. Luckily my friend Jim O’Shaughnessy tweeted a wonderful quote from Seneca and I finally had what I needed to get going.   Thanks Jim, you’re the best.

It has been said to “never let a good crisis go to waste” so I’m half writing this for you and half for me, I want us both to reflect. Now I’m not saying what we are going through is over, this isn’t reminiscing about a bygone era, I just want to write down what I think is important to remember about this tumultuous time while its fresh in my mind.

So without further ado, let’s take a trek through the past 9 months and see what wisdom we can glean.

1)  Your equity exposure should be what you can sleep with at night. Don’t forget how you felt in March of 2020 holding stocks.  Read that again before you move on.  If you couldn’t sleep then you won’t be able to the next time a selloff happens.  Find the right allocation for your specific comfort level and then stick with it.  Charlie Munger once said: “The first rule of compounding is to never interrupt it unnecessarily”

2)  Time horizons drop to zero in a panic. I’m 46, I have a family, I own stocks for the long term to reach my goals. All I could think of earlier this year was selling them because I couldn’t believe what I was seeing. My investing horizon had dropped to the next minute.  You have to fight that and if you can’t, get someone to help you like an advisor. The World breaks all the time, don’t let that fact knock you off your plan.

3)  The amount of support for markets / the economy is essentially unlimited. As systemic panic accelerated the Fed backstopped whole sections of the market to prevent a financial crisis from unfolding.  The US Government passed a multi trillion-dollar stimulus. When things are coming unglued there’s really no limit to what policy makers can do to shore up the system, it just comes down to political will.

4)  The stock market is not the economy, but it kinda is. History will likely view the CARES Act as one of the most important pieces of legislation ever passed. The extra UI benefits and stimulus money got us through a very difficult period. The stock market realized how important that was to consumers and that’s one of the reasons it bounced so fast. Just because economic data looks horrendous doesn’t mean the stock market will reflect that, stocks discount the future not the present. 

5)  Charts can lose their importance at times. Our industry loves a good chart, it’s a staple of interacting with clients. Technical Analysis can be a valuable part of an investing process. That being said, it’s very difficult to stop someone from making a potentially catastrophic decision, in the midst of an overwhelmingly scary situation, with just a chart. Reduce complexity and increase empathy when fear rules the day.

6)  Stock MarketOutlooks” are impossible to get right. Strategists often give “market outlooks” to start a year, they are typically snapshots of what has happened and what they expect to unfold over the coming year. If I told you in my 2020 Outlook that we’d see a Global Pandemic, social unrest, and a stock market crash you’d probably want to spend the whole year in cash. As I write this the S&P500 is up 5% YTD. Even if you had every single piece of information on January 1st about what would unfold you’d still have trouble making money off it. This is one of the reasons I dedicated my professional life to the study of Behavioral Finance. Your behavior in a panic is PARAMOUNT to your success.

7)   We should study history but realize that it’s not a guide to the Future. In the GFC stocks fell 55% from their highs. I remember telling someone “it fell 50% back in 2007, why wouldn’t it this time, this seems worse”. Stocks bottomed down 33% this year. Look to the past for context but realize what you’re going through is always unique. 

8)  Market Structure matters…a lot. The top 5 stocks in the S&P500 are AAPL, AMZN, FB, GOOG, and MSFT. They represent 21% of the weight of the entire index and they are arguably amongst the most successful companies in history. Whatever you’re expecting the overall market to do, you need to consider how those 5 will act.

9)  Companies (and by proxy their stock price) can adapt to difficult situations RAPIDLY. Baird basically pivoted a multibillion-dollar financial services firm to all remote work in less than a month with little to no impact on our customers. There are numerous companies who actually grew and took share through the worst of the Pandemic. Good leaders know how to adapt their businesses quickly to changing conditions and the stock market rewards that. This was not the case for every company but it was for some, next time look for them.

10)  Find someone to talk to when things go haywire. I had lived and worked through the GFC but I didn’t know how to process a Global Pandemic. I found a few new friends on Twitter, Doug Boneparth and Conor Sen, and talked to them when things were really hectic. They were in different parts of the country and had different viewpoints and our interactions kept me going. Don’t go at it alone. Lean on your friends, family, advisor, colleagues when you need it the most because they will help get you though.

I’ve never seen a year that argued more for “sticking to your plan” than 2020. If you fell asleep, or forgot you owned stocks, from March to August you would’ve shrugged your shoulders and said “what was the fuss about?”

Dwell on the quote I used to start this blog because the wisdom it conveys about our experiences as investors lives through the ages."We are more often frightened than hurt; and we suffer more from imagination than from reality."

There are lessons we learned from the market during this crisis but they pale in comparison to lessons we learned about ourselves. 

Investing in Education

As a parent it’s hard to know if your kids are listening to the lessons you teach them. “Hey, put on suncreen or you’ll burn” I said to my 14 year old son. One day later he had a sunburn. 

Was I not forceful enough with my advice? Did he just not pay attention to me? Am I teaching the wrong way? Educating a loved one is a never ending task but the better you do it, the higher the odds of success. 

Educating people on markets and investing is a million times harder. Each individual comes to the table with a different set of life experiences and thoughts about money. Getting them to use sunscreen would be trivial, giving them the right financial education requires creativity and perserverance.

I ran a poll on Twitter last week and asked the following question:

Ill admit that I didn’t get a massive sample size but, to be honest, I was not shocked by the results. I have this pet theory that, in general, when Wall St tries to educate clients on the stock market and investing it’s often done in a way that’s too complicated and lacking a personal touch. It’s why I have dedicated my career in Baird’s Wealth Management division to behavioral finance and writing in a way that people can understand (and hopefully enjoy).

After seeing the results of this poll I asked 5 advisors inside of Baird to reach out to their clients and ask the following: “Give us 3 words that come to mind when you hear the phrase ‘stock market’ and ‘investing’”. I thought to myself “their answers might tell us whether our efforts to educate them on what really matters is working or not”. Let’s look at what they said.

Stock Market:

Since this is a word cloud the larger the word, the more responses we got using that one specific word. The two standouts are “VOLATILE” and “RISKY”, which I think is perfect. On a day to day basis the market is a coin flip to be positive or negative, so it will always appear risky. Over the short run emotions dominate price action, so volatility is something we must all live with.

Notice what’s not in here? Words like “beatable” or “timing”. Things you might see in newsletters that only enrich the author and not the reader, the kind of thinking that might lead an investor astray.  I’m super pleased with that.

The rest of the answers show insight into how the advisors are engaging with their clients. “Exciting”, “Unknown”, “Fascinating”, these are all real emotions that fill client’s heads when thinking about the stock market. The advisors likely let them know that it’s ok to be fascinated and excited about something that is ultimately unknowable, curiosity is what makes humans so great. “Growth” and “opportunity” are fantastic words to think about with respect to the stock market because they lead us nicely into the next section….Investing.


I have to tell you, I was super excited with the results of this word cloud. Look at the top 4 and tell me these Baird advisors aren’t doing an amazing job educating their clients.

Investing is about the “FUTURE”, it requires “PATIENCE”, it is super “IMPORTANT”, and it demands “STRATEGIC” thinking. Sprinkled in there is the fact that investing is “long term”, “rewarding”, “complex” and “ever changing”. Someone even used “planful,” which is a nice shoutout to our financial planning teams!

I really want to drill down into “PATIENCE” though because that will always be the key to reaching your goals. There are two things you need to hold in your mind to be successful at stock market investing: 1) the world breaks all the time, the market crashes often, but that 2) doesn’t preclude long term growth. The worst kind of investing mistakes happen when people forget this one word (or they abandon it during volatile moments like March 2020).

Guys, the world really does break all the time, there is never a steady state of complete peace and prosperity where investors have no concerns and just dance through tulips while reaping 20% returns. 

Wars, recessions, pandemics, societal unrest, political uncertainty, these are all present throughout human history. You must accept that the World will unravel from time to time but that doesn’t preclude FUTURE long-term growth, the kind you can benefit from as an investor (Long term isn’t 1 year or 3 years, its 10+ years, don’t forget that).  

I was so thrilled by the results of this little experiment that I felt compelled to share the answers publicly, and while it looks like I need to continue educating my son on the use of SPF50, I feel like our advisors are doing an awesome job with their clients. 

To be clear, education is just one component of the relationship between a client and their advisor, but it can be useful in helping to cut through the overwhelming noise emanating from the market. Without it, investors can become easily distracted.

Every single day Baird advisors are out there helping real people reach their goals, educating them on what’s important, and guiding their plans through an uncertain future.  If you feel like you aren’t getting the right kind of education with respect to your money and investing, give us a call.

What Keeps Me Up At Night

I don’t often write about the things that are bothering me. Not only do I hate being negative (there’s plenty of people out there who are) but it seems so trivial to talk about the concerns of one Michael Antonelli. 2020 has given us our fair share of things to lose sleep over so I thought I’d do a quick list of the topics that wrack my brain while I try to fall asleep every night. Here they are, in no particular order:

  1. Permanent job losses. When the pandemic started I had hoped we would get through it fast enough that the people who were initially laid off would find work quickly again but “permanent job losses” are growing. Bill McBride of Calculated Risk blog has a chart of them here (shows permanent job losers as a percent of the pre-recession peak in employment through the June ’20 report). These aren’t “furloughs,” these are jobs that are gone, pure economic damage. I’m hopeful that line bottoms out quickly and that it doesn’t get as bad as the GFC.
  2. A “Start/Stop” economy. Our economy will only truly recover to pre-pandemic levels once the virus is under control. If we keep doing this open/close/open/close thing it’s going to rattle the stock market and make our path to normalcy longer and more treacherous. Controlling the spread of the virus is how the economy wins.   
  3. Clients that are completely out of the market. I worry about them a lot and I’m not even an advisor. There are always risks to investing, there are always “reasons to sell”. But an underappreciated risk is that you might outlive your money, especially in a world where rates are near zero. How do we help someone who is currently sitting in cash get comfortable with re-entering a diversified portfolio so they can reach their cherished goals?
  4. The Bond portion of a portfolio: To further what I just touched on, if you have relied on the bond portion of your portfolio for income what happens when its filled with instruments that yield 0.50% or 0.85% ? A 60/40 portfolio (for example) is going to look a lot different starting in 2020 than it did in the past. The last thing I’d want is clients reaching for yield in order to maintain income. This is really an important issue going forward.
  5. My back. Why didn’t someone tell me that as I aged I’d come to hate sleeping? When I was in college I could sleep 15 hours no problem, now when I sleep more than 6 hours my lower back feels like someone took a sledgehammer to it.  Ugh.
  6. Losing touch with my teammates. Sure, I can chat with them on IM, I can see them on Zoom calls, and I can participate in a socially distanced happy hour. But I miss the days of stopping by their desk to tell them how awesome Disney is, or going to grab a SBUX, or bouncing an idea off someone in a hallway. I miss the collaboration and face to face camaraderie.
  7. School. Will it happen? Will my children be safe? Will one infection close down a school for weeks? Will my children get the same level of education if they have to do it from home again How can you not lie awake at night and worry about school?
  8. Having to wear dress clothes again. I looked at my work shoes the other day and laughed. Hey guys, remember me? Boy you sure have a lot of dust on you. My dry-cleaning bag could fit on the back of Santa’s sleigh and I dread the bill when I take it in. If my bosses sent an email “we encourage associates to wear athleisure” I’d be willing to take a pay cut (that’s a joke…)  
  9. That this moment passes us by without any real change: Have we reached a tipping point? Are we being nudged? Whatever fancy term you want to use I pray that 2020 is the year that deep meaningful change finally happens and that we look back on this moment as a historical turning point for equality. To quote Hamilton: History has its eyes on us.
  10. That millennials never trust the stock market again. I know you’ve lived through two really bad crashes and two horrendous job markets but I want you to know that the World breaks all the time, the stock market crashes often, please don’t fall into a mindset that the World is out to get you. Having an investing plan and sticking to it is the key to reaching your goals especially during turbulent times.

But while these things keep me up at night they don’t diminish my long term optimism. We live in a world that rewards problem solving, grit, and resolve. The incentives are all there to figure this thing out – it will take time, sacrifice, and tremendous effort, but I think the case optimism always wins out.

Guess what, if you are waiting for the world to be calm, stocks to be cheap, the perfect political atmosphere, and complete certainty about the future before you invest then, my friend, you’re going to be waiting a very long time.  

Build a plan, have a goal, find someone to talk you through the tough times, then spend your days doing what you love and ignoring the noise. That dear reader will help you sleep at night.   

Not A Recovery, A Revival

The stock market roared back to unchanged on the year (before the most recent decline). It's weird to type that, it's even weirder to see it:

The crash of 2020 was an absolutely chaotic breakdown as the market became obsessed with the worst-case scenario. Would 2 million people die? Would we have another Great Depression? Would the economy be shut down for years? All it could think about was darkness. 

But then we bounced, for a variety of reasons. Government stimulus, Federal Reserve backstops, a market structure dominated by big tech firms, the fact that it cares more about the "duration" of this event than the "depth". While we read about a 40% drop in Q2 GDP and tens of millions unemployed the market was thinking about a potential recovery. 

Recovery, it's a curious word, defined as: "a return to a normal state of health, mind, or strength." Opentable data shows more people going back to restaurants, TSA data shows more people going through security checkpoints, Credit Card data shows people back to normal levels of spending, Hotels are seeing increased occupancy. The market started to price in an economic recovery in early April and we're just now seeing it happen in real time. But I don't want to focus on a "recovery," the US economy is resilient and will get back to where it was one day, I want us to focus on a "revival."

Revival is defined as "an improvement in the condition or strength of something" and that's where I want us to go. I don't want to see a return to a "normal state". I want to see an improvement in the market, in the economy, and in the fabric of the World around us. 

Racism in every single form needs to end NOW. Let us shine a spotlight of equality across the World so that every one of us can be confident in seeking life, liberty, and the pursuit of happiness. 

I wrote a blog post titled "Bite Sized Chunks" that is sitting in my draft folder. In it I wanted to relay how I've been approaching all that we've seen in 2020 and how I deal with it on a personal level. Here is a snippet:

I will help in a circle around me: I can't affect the national picture but I can impact everything in a tight circle around me. My friends, my family, my community, my firm. I will help where I can knowing that my little portion of this World is rowing in the right direction.  

I can't solve the problems of the World, and they are vast, but I will be a force for good which includes teaching my children and making a positive impact in the community. I can make a difference, I know I can, and I will. 

Help us be a part of this revival, not recovery, so that going forward our nation (and economy) is better for every single person.

The world (and the market) is a chaotic place, never in a state of calm, but that doesn't preclude long term growth. Things get better over time, others don't let's focus on what needs fixing so that 2020 wasn't the worst of our years, but one of the best of them. 

Grading My Actions

As I look back on the past two months of insane markets, I feel both shock and relief at what we’ve been going through. March 2020 was the most volatile month in stock markets history. 2 of the 6 worst days in DJIA history happened in March. We saw the fastest bear market in history and at the low on March 23rd it felt like the wheels were coming off. Looking back on it now it was easily the scariest month I’ve witnessed in my career (and I was an institutional trader through 2008-2009).

Then April followed and proved to be one of the best months in history, a +12.9% gain. Horrendous crash, relief bounce, quite a one-two punch. I wanted to use this space not to talk about why the market fell in March then rose in April but to analyze my own actions during those months. I am a market strategist in Baird’s Private Wealth Division. I spend my entire life embroiled in the ups and downs of markets and investing. I thought it would be interesting to examine what I did as the pandemic rocked global markets because if I’m going to talk to advisors and their clients about investing, I should be willing to share my results and thought process. 

To set the stage I am a married 46-year-old with two children ages 14 and 12. My advisor and I have decided on broadly diversified mix of equities and bonds (this is not investment advice, nor is my asset allocation a model for every investor). I’m going to use a chart of the S&P500 as a proxy for when I made my decisions because I have no great benchmark given the complexity of my holdings. When the pandemic got going in March, and the stock market fell, I made the decision to start moving some of the bonds into stocks, essentially upping my equity weight. I made two buys, you can see the area where I made a decision on this chart, and where the market is today (May 7).

How do I grade those two decisions? Hindsight is obviously 20/20 and the first decision now looks early, but stocks had fallen 7% from their highs. A 7% drop in a huge bull market looked attractive to me. Unfortunately, the market started to fall apart as the news worsened. My second buy was early March, down 18% from the highs. Better for sure but still appears early. This was my thinking as market fell – I’m 46, I have decades of time in front of me and I am finally getting a chance to buy at lower prices after a ten year bull market….why would I pass that up?

Then things really came unglued and my nerve to buy stocks evaporated. At the low on March 23rd I could think of nothing but the worst-case scenario unfolding. I was frozen. Everything made me think the market was going even lower, my mind filled with darkness, muttering to myself “I can’t buy here”. I called my advisor so they could bring me back from the ledge, to remind me why I’m investing and why planning is so important to my success.

While I took no action close to the lows, look what happened on March 25, two days after the low.  


That’s right, my dividends reinvested like they always do. Dividends can play a significant role in investment returns and, in this instance, they did a better job of buying near the lows than I did though obviously I did get lucky on timing here.

So how did I end up doing? How do I view my actions in hindsight?

First, that may not have been THE bottom, we might retest it or go lower, but for now I want to grade my actions while they are fresh in my mind. I think my first buy was clearly way too early. I didn’t know how bad it could get, I just assumed it would be a temporary blip. The second buy is certainly better but I learned a painful lesson about bear markets, when stocks are in free fall they can accelerate to the downside. The dividend reinvestment reminded me that the automatic portion of my investment plan has no emotions, it just sticks to the plan. If I had to grade myself I’d say B-, what I do know is that I need to work with my advisor on a rules-based plan for how I react to selloffs going forward.

No joke I had my finger over the sell button near the lows, I had seen scary markets before but the added worry about a health crisis rocked me to my core. I remember leaving my basement, walking around outside and thinking about how bad it could get, what I would do, what my family would suffer if the market kept imploding. Thankfully I had an advisor there to remind me one thing:  that my plan, my investments, my strategy, is built SPECIFICALLY for me and no one else. He reminded me that “the end of the world isn’t a plannable event, it’s best to think of the most likely outcome rather than the worst case”. What was that? That continuing to be a long-term optimist is true to who I am and my strategy. The key to success, especially with investing, is being able to ride out the inevitable declines.

Investing can be much more emotional than we want and March 2020 reminded me that having someone outside my brain is incredibly valuable. I may not have bought at the absolute low but I honestly don’t care and neither should you. It’s entirely possible that WASN’T the ultimate low, only time will tell. Let me end with this quote by Howard Marks:

“The Investors goal should be to make a large number of good buys, not just a few perfect one’s.” 

I didn’t make a few perfect buys, no one does, but that will never be my goal. My goal is to keep making “good buys”, be optimistic about the future, get through scary selloffs when they happen, stick to my investment plan, and allow time and compounding to do its work.