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Don't Panic During Market Disruptions


A decline in the markets can be a frightening experience. As indices drop for days, weeks, or months at a time – questions flash through an investor’s mind. How long will this last? How much will the value of my portfolio decline? Is now the time to sell? These uncertainties are only amplified by sensational market headlines like “The Worst Week for Global Markets Since the Great Recession” or “Stock Market Slump: No End in Sight.”

Regardless of the dire picture painted by news outlets, a steep market downturn is a natural part of a healthy economic cycle. By definition, when markets experience a pullback of 10% to 20%, we call that a “market correction.” When that decline is larger than 20%, markets are in a bear market. While a market decline can be caused by many different factors, it’s often a signal that investor sentiment has shifted from optimism to pessimism, and as a result – overpriced assets snap back to more realistic prices.

What Causes a Market Correction?

Market corrections are common, and over a long enough timeframe, they’re a virtual certainty. But it’s impossible to predict exactly when they will happen and what will cause them.

Historically, market corrections have happened at times of recent market highs and elevated sentiment. The correction can be triggered by a national or global event that causes investors to worry – for example, fears over a widespread disease or uncertainty surrounding a presidential election. But, more commonly, there’s no single catalyst for a correction. They can happen seemingly at random, without any obvious cause. This makes them all the more difficult to anticipate.

Reacting to a Market Correction

What You Need to Know About Bear Markets

A bear market occurs when stock prices experience a significant drop and widespread pessimism sustains a continued decline in the market. Historically, bear markets have lasted an average of 18 months – roughly half the length of the average bull market.

The pace at which the most recent bear market began was startling, as markets were setting record highs as recently as February 2020. But in just a short stretch of time, the S&P 500 index gave back everything it had gained in the past three years. The beginning of this bear market was the fastest in history.

Bear markets are notoriously difficult to predict, as falling securities values might just be part of a market correction. Perhaps the most dangerous aspect of a bear market is its ability to cause investors to overreact. During bear markets, investors tend to tinker with their holdings, often over-selling after securities have fallen sharply.

Steep market declines and scary headlines understandably create nervousness and confusion. These jitters give rise to a vicious cycle of markets dropping, fearful investors selling, and markets dropping even more.

Those who remain calm and keep things in perspective are much less likely to be swept up in this negative feedback loop. Individual investors, as well as professional asset managers, who don’t panic during corrections are in a strong position to fare well. Those who sell during a correction lock in their losses to date and run the risk of missing out on any bounce back.

During market corrections, investors may also benefit from having actively managed funds in their portfolio. Certain passive-only investing strategies have the potential to expose investors to securities and sectors with weak fundamentals, making them more vulnerable to sharp market declines. Active management has historically offered benefits during times of volatility, as it allows the portfolio manager to take advantage of opportunities based on current market conditions. At Weitz Investments, all our funds are actively managed, high conviction, and backed by a thorough research process.

The Impact of Corrections

Fortunately, market corrections are usually a short-term event, occurring an average of once per year and lasting three to four months. The average market loss during a correction is about 13%, and historically, that loss has been recovered over a period of about four months. In the grand scheme of things, a correction can be little more than a blip on the radar for investors with a long-term focus. It’s important to note, however, that each situation is different, and it’s impossible to know exactly when the markets will turn around.

For a longer-term perspective, the table below shows performance of the S&P 500 index during and after significant macro events since the 1980s. Certainly, in each of the events below there were investors who were scared into cashing out. But given a long enough time horizon, these fear-fueled selloffs have all been erased. Imagine selling during these declines only to miss out on the market’s subsequent gains.

      S&P 500 percentage of gain/loss after last reaction date
Event Event reaction dates Percentage of gain/loss during event 1 month after event 1 year after event 5-year annualized return after event 10-year annualized return after event
1987 stock market crash 10/2/87-10/19/87 -31.50% -21.54% -8.69% 8.92% 14.85%
Gulf War escalation 8/2/90-10/17/90 -15.26% 6.63% 35.82% 17.90% 18.90%
Collapse of Long-Term Capital Management 7/17/98-8/31/98 -19.00% 3.20% 40.88% 2.48% 4.67%
September 11 terrorist attacks 9/10/01-9/21/01 -11.01% 12.97% -11.21% 8.24% 3.57%
Collapse of Lehman Brothers 9/5/08-11/20/08 -38.82% 18.27% 48.68% 21.65% 15.86%
U.S. debt downgrade by S&P 8/5/11-10/3/11 -6.47% 14.20% 35.78% 16.84% N/A
2016 Brexit 6/23/16-6/27/16 -4.07% 8.64% 24.55% N/A N/A
Source: Morningstar Direct, Bloomberg. Historical references do not assume that any prior market behavior will be duplicated. Past performance does not indicate future results.

For yet another viewpoint, let’s look at how the bond market has fared during event-driven market disruptions. You will notice in several but not every case, bond prices moved higher during the event in question, and over the long term, the overall fixed income market experienced consistently positive returns after these events.

      Bloomberg Barclays US Aggregate Bond Index percentage of gain/loss after last reaction date
Event Event reaction dates Percentage of gain/loss during event 1 month after event 1 year after event 5-year annualized return after event 10-year annualized return after event
1987 stock market crash 10/2/87-10/19/87 1.37% 3.56% 13.23% 11.75% 9.49%
Gulf War escalation 8/2/90-10/17/90 -0.38% 2.50% 15.72% 9.78% 8.05%
Collapse of Long-Term Capital Management 7/17/98-8/31/98 1.83% 2.83% 0.78% 6.56% 5.38%
September 11 terrorist attacks 9/10/01-9/21/01 0.39% 1.29% 8.87% 4.95% 5.82%
Collapse of Lehman Brothers 9/5/08-11/20/08 -2.52% 4.88% 12.25% 5.55% 3.78%
U.S. debt downgrade by S&P 8/5/11-10/3/11 1.04% 0.02% 4.61% 2.92% N/A
2016 Brexit 6/23/16-6/27/16 0.91% 0.38% 0.03% N/A N/A
Source: Morningstar Direct, Bloomberg. Historical references do not assume that any prior market behavior will be duplicated. Past performance does not indicate future results.

A Time of Opportunities

At Weitz Investments, we manage our portfolios with a focus on quality, price discipline and the long term. Our goal is to buy securities of companies that can sustain through, and take advantage of, market dislocations. We aim to buy when stocks and bonds are selling for less than what we think they are worth. This “Quality at a Discount (QuaD)” investment approach often means we add to our existing holdings during a market correction, which is an advantage of active management. We also see market corrections as a time to be vigilant of new buying opportunities. A sharp decline doesn’t necessarily mean we’ll be going on a shopping spree, but it may mean more attractive prices for companies on our radar.

In other words, market corrections may very well create buying opportunities, but our decisions are rooted in a company’s price compared to its intrinsic value – regardless of recent market activity.

There Will Always be Volatility

The only certain thing with investing is uncertainty. And perhaps the most troubling part of corrections is that they tend to happen at times of seemingly invincible markets. When incredible performance is interrupted, it’s natural to wonder how long the interruption will last. But it’s always important to remember that the simple concept of “buy low, sell high” is impossible without “low” times. When prices fall, you can either follow the crowd and sell – or you can be optimistic about potential opportunities.


The opinions expressed are those of Weitz Investment Management and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through the date of publication, are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed. This commentary is being provided as a general source of information and is not intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy. Investment decisions should always be made based on an investor's specific objectives, financial needs, risk tolerance and time horizon.

All investments are subject to market risk, including the possible loss of principal. Holdings are subject to change and may not be representative of the Fund's current or future investments.

Index performance is hypothetical and is shown for illustrative purposes only. You cannot invest directly in an index. Click here to view the Index Definitions.

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