When we talk about wild markets, we usually use the Great Depression and the WWII era as the benchmark for extreme market discussions. This is understandable, as the 1929-1932 was the most extreme market decline in the history of our country, with stocks falling 89% from peak to trough. Interestingly, perhaps because of the extraordinarily beaten down price that existed in 1932, stocks never moved more than 30% from any particular high or low between the start of WWII and the end.

My own view is that it is time to dust off the history books and use WWI as an example, particularly because it had the Spanish flu pandemic striking in waves during 1917 and 1918. When you look at the WWI-era stock market, there were 50% swings throughout the war. People who invested in shares of American business were called “stock cowboys” and Andrew Mellon was prompted to introduce the phrase “Gentlemen prefer bonds” into the Wall Street lexicon. The swings were so wild that owning stock was widely regarded as an inherently speculative endeavor (when, in reality, business earnings were stable but the sentiment and outlook for the buyers and sellers changed quickly). 

With the Spanish Flu, there were three waves of the pandemic. While there is no expectation that history will repeat, it is logical to brace for the long haul because: (1) either social distancing will prove ineffective and the outbreak of the Coronavirus will continue unabated; or (2) social distancing will prove effective, Americans will return to work, and then the process can repeat with the virus spread starting “anew” until a vaccine arrives. 

Throughout American history, the typical bear market has a tendency to last around 18 months. Some, like 1987, were very brief and in fact stocks ended 1987 higher than where it began that year. 

My own view is that the fall-out from this outbreak is not over yet and the United States may even seen an unemployment rate north of 20% at some point during the coronavirus pandemic (at first, these numbers won’t look as bad as they seem because many laid-off employees are done so with the understanding they will be brought back as soon as this passes, but the longer the coronavirus shutdown lasts, the more we will see “temporary job losses” become “permanent job losses”).

The implication is that I do not view the current stock market as something that requires “all available/investable cash to be deployed in March 2020.” 

I do not view the significant gains (presumably resulting from the $2 trillion stimulus plan) in recent days as the evaporation of opportunity. Rather, I view it as something where it would be appropriate to invest 15-30% of one’s available dry powder to seize some opportunities, but the remainder should be deployed in the months and maybe even year ahead. If there is a rebound that comes quickly, great, the opportunity of low prices was seized in some way. But if the pandemic continues and the bear market continues in a way that resembles bear markets historically and the last pandemic specifically, the opportunities will continue to flow. It is true that cash is like oxygen in that it is ignored when you have it but all you can think about when you don’t.

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