When I left the University of Chicago in 2007 to start my career at Baird I was super excited about the challenges that lay ahead of me. I turned down offers in major NY banks to work for a small midwestern firm and, in hindsight, it was the best decision I’ve ever made (next to taking my wife out on that first date). I started on the trading floor in March of 2007, eager as anyone to build a reputation inside and outside my firm. One year later the world was gripped by a global financial crisis and I earned my stripes helping our clients navigate treacherous waters. I left that role and joined Baird’s Private Wealth division in March of 2019, hoping to bring my unique style centered on behavioral finance to our advisors and their clients. One year later, in March of 2020, the world is gripped by…. Ok, fine, you wanna blame me? I can handle it. I promise next time I debate changing my role I’ll write a blog encouraging you to buy puts. Look, these are serious times, our Superbowl as Josh Brown puts it, but all of us here at Baird are ready. I cut my teeth as a trader in 2008 so let me share with you a few of the things I learned back then.
When will this selloff end? When will the pain stop? No one knows but there are a few things I and my teammates are looking for. Baird’s investment strategy team wants to see the “waterfall decline” cease, as such they are looking for two “10 to 1 up days”. What does that mean in English? They want to see massive volume on the buy side. 10x as many shares bought as sold which generally indicates that the market thinks the worst is behind it. I personally don’t think the market can bottom until it understands how many cases there are in the US which means more testing and seeing the # of confirmed cases rise rapidly. We also got hit in the face with an oil shock as Saudi Arabia decided this was the best time to start a price war. One of the lessons I learned in 2008 is that when things seem bad, they can always get worse, and markets trade on “better or worse” in the very short term. You’ll never call the bottom, don’t try, in fact let me give you an example of someone who didn’t.
On October 16, 2008 Warren Buffett wrote an op-ed in the NYT titled “Buy American. I am”. It was delivered in the midst of the worst storm to hit our markets since the Great Depression. Let me read you a quote from it: “You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.” Look at the date, October 16, 2008, Warren’s buys (and all of ours) would continue to get pummeled for MONTHS. In fact, the S&P500 would go on to drop an additional 29.6% before bottoming.
My friends this is what “buy low, sell high” looks like. You buy and the market goes down, then you buy and it goes down more. But your horizon is sufficiently long enough to put the odds of success in your favor and one day, down the road, you sell high. Warren Buffett, arguably the best investor of all time, reminded us back then what is still relevant today. The people who managed to miss out on all the gains from the 20th century were the one’s who sold when “headlines made them queasy”. I started my son’s 529 account in 2007 and watched it get CUT IN HALF. Imagine having a newborn son, being excited to start saving for his college education, and watching his money get mercilessly destroyed. But I stuck with it, buying low, and lower, and lower, and one day I’ll sell high (hopefully, it’s certainly no guarantee) and it’ll be like 1/10th of the money I need for his education. Ugh.
This is a serious time and it will likely get worse before it gets better. Find smart people to follow, good information to read, an advisor who can guide you, but also remember to find people who make you laugh. Humans need laughter in times like these, its just as important as technical analysis. I spoke at an event last night in Wausau WI and while I told our clients how we view the world I also made an effort to lighten the mood when appropriate and I could see on their faces that they appreciated it. I knew plenty of people in 2008 who were both serious and had a great sense of humor, which was crucial in the darkest hours. All of them are still in this industry helping their clients today.
This is our time to shine, all of us at Baird, and we won’t let our clients down.