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An Anniversary To Remember: The 2009 Bear Market Low

Steve Pomeranz, 2009 Bear Market Low

March 9, 2009: The Day Stocks Bottomed Out

I wonder if any of my listeners, especially those active in the stock market, remembered the historical significance of last Thursday, March 9th, 2017??

Well, believe it or not, that day marked the eight year anniversary of when stocks bottomed out on March 9, 2009, the worst of the blood bath of the 2008 financial crisis, aka the 2009 bear market low.

But first, let’s first recap what happened. The 2007-2009 financial crisis spawned a 17-month bear market that lasted from October 9, 2007 to March 9, 2009. In that period, the S&P 500 lost approximately 50% of its value. While the decline was incredibly nasty, the duration of this bear market was relatively short due to the extraordinary interventions by the government and the central bank to prop up at-risk companies.

The bear market was confirmed in June 2008 when the Dow Jones Industrial Average (DJIA) had fallen 20% from its October 2007 high, which it reached after the heady bull market of 2002–07 when property prices and stock values were on a tear.

On October 11, 2007, the Dow hit a peak of 14,198. before starting its decline.

The decline of 20% by mid-2008 was in tandem with other stock markets across the globe. On September 29, 2008, the Dow experienced a record-breaking 777.68 drop with a close at 10,365.45. It then hit a market low of 6,443.27 on March 6 of ’09, having lost over 54% of its value since the high of 2007. The bear market then reversed course on March 9, 2009, as the Dow rebounded in the next three weeks more than 20% from its low up to 7924.56 and then it went up 30% by mid-May and over 60% by the end of the year.

Interestingly, when stocks bottomed out that day eight years ago—amidst fear, doom and gloom—The Wall Street Journal’s Money and Investing section ran a story with the title, “How low can stocks go?”

And, back then, it wasn’t an idle question. The Dow was on its fourth straight week of losses, while the broader S&P 500 was below 700 for the first time in 13 years. Goldman Sachs put out a research report that warned that the S&P could fall as low as 400. Imagine that! Goldman Sachs, the ultimate insider on Wall Street, was so gloomy on stocks and completely misread the tea leaves and predicted a further 40% drop in the S&P from its 700 level. Stunning!

So, eight years ago, on March 9, 2009, the Dow closed at 6,547, the S&P 500 was at 677, and the Nasdaq closed at 1,269. Fast forward to March 9, 2017 and the Dow closed at 20,858, up almost 220%, or about 18% a year on average. The S&P 500 is now near 2,365, up 250% or about 19.6% per year; and the Nasdaq is near 5,840, up the most with a gain of 360% or about 24% per year. That’s a pretty phenomenal bull market.

Now, eight years later, we know without a doubt that March 9, 2009 was the bottom of a months-long financial panic that wiped away trillions of dollars in assets. But on what now appears to have been the best buying opportunity of a generation, many only wondered how much lower the markets would tumble. And this underscores a recurring theme I point to: That emotion, fear, and uncertainty get the better of even the most experienced and qualified investors in the market. That it’s futile to try and call the bottom in real-time, and that investors should always look for dips as long-term buying opportunities on good quality stocks.

I was an investment advisor, of course, during that period of time, and on March 9, 2009—I remember like it was yesterday—I would not buy on that day. As a fiduciary, legally in charge of other people’s money, I thought that the economy was too worrisome to commit clients’ funds. But by May and June or so, I started to feel more confident and waited for the confidence to come back into the market and then I started to come back in.

Looking back, everywhere you turned on that March 9 day in 2009, it looked like the economy was ripping apart at the seams. Billionaire T. Boone Pickens had just announced that he was pulling back his plans to build a massive wind farm in Texas because of the lack of investor interest. A managing partner at a hedge fund interviewed by The New York Times was advising well-off clients to buy shotguns to protect themselves against social unrest if the market fell any lower. I guess the next time we hear about shotguns, we should maybe think that it’s another market low.

“The only bracing symbol of American strength right now is the image of Michelle Obama’s sculpted biceps.”

Maureen Dowd, the fiery columnist for The New York Times, lamented that General Motors was near bankruptcy and that the President had to deny he was a Socialist. She also wrote,“The only bracing symbol of American strength right now is the image of Michelle Obama’s sculpted biceps.”

And over on Comedy Central, Jon Stewart was savaging CNBC for its role on downplaying the severity of the financial crisis with a withering takedown. Talking to Jim Cramer at the time, he said “If I had only followed CNBC’s advice, I’d have a million dollars today … provided, of course, that I’d started with $100 million.”

And remember the much-criticized TARP (Troubled Asset Relief Program) bailout where, under this program, the government gave hundreds of billions to prop up iconic American corporations that were on the brink of collapse? The government received large chunks of shares in return, effectively giving U.S. taxpayers large equity ownership in firms such as GM and almost 80% of AIG or American International Group. The fact that the American public was paying AIG, who was then paying its counterparties like Goldman Sachs full price on the $70 billion worth of derivatives, spawning persistent conspiracy theories. But guess what? That bet paid off very nicely for the government, with huge equity gains on those positions. And I guess you could say, unwittingly, the government bought low and sold high.

The financial sector saw one of its few positive signs when billionaire Warren Buffett argued that his holdings in Wells Fargo and US Bancorp should appear “better than ever” in 2012. With blood on the streets, legendary Mr. Buffett stood strong in his support and belief in the American economy. (He also made some well-timed investments as well.)

Still, the once high-flying financial sector was humbled. Bank of America traded for just $3.68 a share (it is now around $25, a gain of almost 600%) and credit card issuer Capital One Financial traded for $9.20 a share (it’s now at around $92, up 900%.)

So, while Buffett stood strong, several so-called financial pundits were telling investors that buy-and-hold investing was dead and that the only real way to make money in the market in the future would be to strategically time your trades and take your gains whenever you could get them. Advice that could not be more untrue. And that reminds me of when I bought Amazon back then at $10 a share and sold it for $30 a share. And I thought, “Gee, you never go broke taking a gain, and, sure enough, the stock is selling at over $800 a share today. Silly me.

There also were a few optimistic signals. As the federal government began to send its stimulus dollars into the economy, some on Wall Street were comforted and predicted that things would only get better from there on… which they did, beyond the wildest dreams of even those optimists.

The lesson here is:

  • Stay away from timing the market because those who got out in 2008 or early 2009 likely missed out on a lot of the gains they would’ve gotten by just staying in. Even if you had sold as the market was declining and avoided much of the pain, most of those who did sell did not get back in because they remained disbelievers throughout the subsequent rise and, unfortunately, many of them to this day remain out of the market still.
  • Stay invested with a portfolio of high-quality investments, or, if they’re mid-or-low quality investments, make sure you own a slew of them, such as mutual funds or ETFs.
  • Keep some cash on the side and deploy it when shares drop dramatically because they almost inevitably rise back, phoenix-like, and soar higher from the ashes of market crashes.