1Q20 Investment Letter

We feel investors should have an information outlet for the financial markets that is thorough, but does not require a prerequisite degree in economics. We hope this makes our commentary informative and educational for all levels of investors. 

Quarter in Review

Asset Class†1st Quarter 2020 ReturnPast 12 Months
U.S. Small Cap Stocks-30.6%-24.0%
U.S. Large Cap Stocks-19.6%-7.0%
International Stocks-23.4%-15.6%

The trend of positive stock market results ended abruptly this quarter as COVID-19 became a global pandemic. March 2020 was the worst single month for most stock market indexes since the height of the financial crisis in October 2008. While the declines were deep, the speed at which the markets dropped was unprecedented. The table below shows how much quicker the S&P 500 moved downward in this crisis versus the 2008 crisis.

Time in Trading Days from High to Decline Level

Market DeclineDays in 2020 to Reach Level of Decline
(High 2/19/2020)
Days in 2008 to Reach Level of Decline
(High 10/9/2007)

The severe downward declines slowed in the month of April, but daily stock market moves of 1% or more have become the rule rather than the exception.

Oil has also grabbed headlines throughout the coronavirus crisis. First, in early March, Saudi Arabia, acting as lead member of OPEC*, attempted to enter an agreement with Russia to restrict the supply of oil as lower demand due to COVID-19 threatened to upend oil markets. Talks failed and Russia backed out of the agreement, kicking off a race-to-the-bottom price war. This, in itself, was some of the biggest news in the commodity world in the past quarter century.  However, this was nothing compared to what occurred on April 20th when oil prices dropped to negative $37 per barrel. With demand dropping even more precipitously than expected, oil storage became a problem and tankers full of oil had no port that could accept their oil. In the rarest of all rare events, this meant that a seller would actually pay a buyer to take the oil off their hands, but even that was hard for sellers to accomplish since it’s not exactly easy to store a tanker load of oil. It’s times like this that you wonder why you didn’t install a 100-million-gallon oil tank in your yard.

Lessons learned: Investing during a crisis

During turbulent times like the period we find ourselves in now, it can be tempting for investors to make changes to their investments in reaction to the events unfolding. It is cliché for advisors to remind clients to stay the course, so instead of talking the talk, the following example plays some Monday morning quarterback–showing how an unchanged static portfolio performed versus 4 other portfolios that changed allocation during the 1st quarter through April 24th

This following example is merely for illustration and does not represent actual investments. The returns of the S&P 500 index are used for stocks and the Bloomberg Barclays Aggregate Bond index for bonds. The static portfolio is a 60% stock and 40% bond allocation at the start of the 1st quarter. 

The Crystal Ball Gazer

This investor was so wise that they made the decision to sell all investments at the portfolio high on February 19th. Such a move would have returned nearly 9% more than the static portfolio, but let’s put this stroke of luck in some context; on February 19th there were 12 total confirmed cases of COVID-19 in the United States and zero deaths.

The Sad Sack

This investor made the opposite choice as the Crystal Ball Gazer and decided, to heck with it, I’m going to go all stocks on February 19th. This would have been a stroke of bad luck, and would have been a very wild ride, but the end result would not have been disastrous, returning about 8% less than the static portfolio.

The Opportunist

This investor decided to move all their money into stocks starting on March 24th, the day after the lowest close of the S&P 500 during the quarter. This move had the best result of all the scenarios, outperforming the static portfolio by 9%. While not implausible that an investor would have picked a market bottom, the stock market bottom occurred far earlier than any economic rebound. In fact, as of March 23rd, only 9 states had enacted stay-at-home provisions. 

The Scaredy Cat

This investor decided that enough was enough at just the wrong time, going to 100% cash on March 24th. This portfolio would have had the worst performance of all the scenarios, returning 13% less than the static portfolio. This result is not surprising as it fits into the behavioral economic framework that investors have strong reactions to volatility. Like the “fight or flight” mechanism, human nature tells us to be protective or overly aggressive in distressed times.


In total, the static portfolio would have returned -5.0% for the time period, while the average return for the other 4 portfolios was -5.6%. In short, if there is equal probability to choose each of the 4 options presented, investors would have, on average, done worse making one of these changes rather than staying the course.

Portfolio ScenarioReturn 1/1/2020 to 4/24/2020
The Crystal Ball Gazer+3.8%
The Sad Sack-12.7%
The Scaredy Cat-17.8%
The Opportunist+4.3%

While this very short-term example indicates the dangers of making investment decisions based on emotion, it does not mean that long-term investment strategy should be static. In fact, the periods following a major market reversal can be some of the most valuable for an investor to evaluate their risk tolerance. If you found yourself checking account balances daily, watching financial news more frequently, or even losing sleep over financial worries, this would be a good time to put some thought in your investment allocation.


OPEC – The Organization of Petroleum Exporting Countries is a cartel of 14 nations which comprise approximately 44% of oil production and over 80% of proven reserves as of September 2018. The cartel does not include either the largest oil producer, U.S.,  nor 3rd higher oil producer, Russia.

† Indices used to represent asset classes: 
U.S. Large Cap Stocks – S&P 500
U.S. Small Cap Stocks – Russell 2000
International Stocks – MSCI ACWI ex-U.S.
U.S. Bonds – Bloomberg Barclays Aggregate
Commodities – Bloomberg Commodity


The information presented here is not specific to any individual’s personal circumstances.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes and represent Wilson Capital’s views based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

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