The Terrible, Horrible, No Good, Very Bad Markets Days

  By Guest Blogger Doug Rowat

I was staring at this deadly looking item at the Bata Shoe Museum in Toronto last month:

Shoe of Death?

Source: Doug Rowat

Oddly, it got me thinking about markets and investor behaviour—such parallels sometimes occur in the strangest places. While this shoe looks like a horrible torture device, its actual purpose is not at all frightening (I’ll explain at the end of my post).

Equity markets are similar. Things that initially appear scary, in the end, usually turn out to be harmless. Also at the Bata Shoe Museum was an exhibit featuring Great Depression–era footwear, which included the following newspaper headline:

Headline that greeted investors after the Oct 24, 2919 stock market crash

Source: Doug Rowat

Though almost 100 years old, the above headline is not that dissimilar from those that appear today following really ugly days on the market. Now, of course, we’re gazing at our smartphones and laptops instead of newspapers, but the frightening messages haven’t changed:

Headline that greeted investors last month

Source: Various media

So, singular periods such as the Great Depression aside, when the market has a terrible day, what should you do? First, recognize that scary headlines are designed to create viewership and sell advertising but aren’t at all predictive. Secondly, once your fear subsides, consider adding to your portfolio and buying on weakness. Below I highlight the 15 worst single-day declines for the S&P 500 over the past 50 years. In almost every instance, the market was higher a year later. The takeaway? Move towards your fear, not away from it:

The worst S&P 500 single-day returns over the past 50 years

Source: Bloomberg, Turner Investments

And, in case you think the above examples were skewed by the 2008–09 financial crisis, below are the 15 worst single-day declines that have occurred since the financial crisis. Again, moving towards your fear was equally beneficial:

The worst S&P 500 single-day returns over the past 10 years

Source: Bloomberg, Turner Investments

So, the next time North American markets have a terrible day (there were several just last month) and the alarmist headlines inevitably appear, don’t curl up into a ball and cry yourself to sleep. Control your fear, take advantage of the weakness and invest.

Finally, that menacing looking shoe above? It was a clog used by 19th century French farmers to shell chestnuts.

Terrifying.

Doug Rowat, FCSI® is Portfolio Manager with Turner Investments and Senior Vice President, Private Client Group, Raymond James Ltd.