The Craziest Month in Stock Market History

Congrats! You did it. You lived through the craziest month in stock market history. Yes, March 2020 was crazier than any month in 1929, 1987, and, even, 2008.

No, this doesn’t mean that March 2020 was the worst performing month in stock market history. That title is held by September 1931, where the Dow lost a record 30.7% in a single calendar month. March 2020 ranks 16th overall for worst monthly loss (since 1915) with only a 13.7% decline in the Dow.

Nevertheless, March 2020 was the craziest.

Why March 2020 was the Craziest Month for Stocks Ever?

How am I defining crazy? Well, in this case, I am referring to monthly market volatility. However, the specific measure I want to use is what I call the cumulative absolute percentage change. The cumulative absolute percentage change is the sum of the absolute value of all the daily returns over the course of a calendar month.

So if the Dow returned +1% on day 1, -1% on day 2, +1% on day 3, etc. for 30 days, the cumulative absolute percentage change would be 30%. More simply, it’s the absolute value of each daily return summed across a month.

Using this measure, the Dow Jones Industrial Average had a cumulative absolute percentage change of 117% in March 2020! With only 22 trading days in the month, that is an average absolute daily change of a whopping 5.3%. The next highest month (Oct 2008) only had an average absolute daily change of 3.8%.

Visually it’s easy to see just how outlandish March 2020 was compared to all other months since 1915:

Dow Jones Industrial Average absolute cumulative percentage change by month since 1915

March 2020 wasn’t just a little crazier than the next 3 highest months (October 2008, October 1929, and October 1987 [What’s up with October??]), it was significantly crazier. It outpaced each of them by over 30% in additional absolute market swings.

More importantly though, the average cumulative absolute percentage change for a month since 1915 is only 15.6%. And since March 2020 had a cumulative absolute percentage change of 117%, this means that March 2020 had the same total market movements as 8 average months stuffed into just one!

It’s no wonder why March 2020 felt like the longest month ever. Not only did it have the highest VIX ever recorded (since VIX started in 1993), but it also had the 3rd biggest daily loss and the 5th biggest daily gain since 1915:

Dow Jones Industrial Average daily percentage change in March 2020

I know this chart may not look that extreme, but when you compare it side-by-side with January 2020, its outrageousness becomes apparent:

Dow Jones Industrial Average daily percentage change in Jan 2020 and March 2020

This is the difference between a more typical month and what we just experienced. If January 2020 was the calm, then March 2020 was the storm.

The Madness Outside of Equities

But it’s not just what happened to equity markets that made March 2020 remarkable. If we look at how some other asset classes performed, March 2020 also looks like one of a kind:

March 2020 asset class performance for various assets

As you can see, both real estate (VNQ) and oil (OIL) performed worse than equity markets, with oil having its worse month since oil futures started trading in 1983! Additionally, gold acted as a semi safe haven, being flat on the month while stocks were down 12%.

More importantly though, while long-term U.S. Treasuries (TLT) were up in March, there were periods where Treasuries lost money while stocks were also declining. This is not typical behavior, and provides evidence of a rare, market-wide movement to cash.

Qualitative Experience Matters Too

But enough of the numbers and charts. The thing that made March 2020 especially insane for most investors was the constant news coverage and speed at which everything was happening.

From the NYSE circuit breaker tripping multiple times within multiple days to President Trump sending Lou Dobbs a signed stock market chart to every finance blogger (myself included) putting out more posts than ever, March 2020 was overwhelming.

The entire month was an onslaught of information, fear, and uncertainty. And to top it all off, we spent most of this month physically separated from each other, sitting within the same 4 walls every day.

For all practical purposes, we became prisoners in our own homes and there was little we could do to change our situation.

It is this lived experience, which can’t be put into a chart or summarized in a number, that makes months like March 2020 that much more real than what you read in a history book.

It’s a bit ironic that it took a virus from a foreign land for me to better understand U.S. history. Without coronavirus, how could I even begin to imagine what the Great Depression was like?

Yes, you can read Benjamin Roth or Frederick Lewis Allen, but it’s not the same as seeing the economy grind to a halt. It’s not the same as seeing stores run out of basic goods. It’s not the same as seeing more and more people lose their jobs.

I can only hope that my recent limited understanding of an event like the Great Depression stays limited. Because as crazy as last month was, I hope we never see one like it ever again…

You Survived

Despite how painful March 2020 probably was for you and your portfolio, I can only hope it wasn’t terminal. And if it wasn’t, then let me say congratulations again! You survived.

As Peter L. Bernstein once said:

Survival is the only road to riches. You should try to maximize return only if losses would not threaten your survival and if you have a compelling future need for the extra gains you might earn.

So no matter how crazy this month was for you, the most important thing to remember is that…it ended.

Yes, market volatility probably won’t go away anytime soon, but I doubt April will be more hostile to your sanity than March was. I could be wrong though.

Either way, the important thing to remember is that investing isn’t about a single decision, but a collection of decisions over a lifetime. As Meb Faber said in Corey Hoffstein’s Flirting with Models podcast (start around 36:00):

I think a lot of what applies to our world of professional management, but also investors, is you just wanna stay in the game…the biggest important thing is to make sure that you live to invest another day. A lot of the very basic stupid mistakes are the most important things to avoid.

So, my friends, make sure to survive. Whether it’s calm, it’s crazy, or it’s somewhere in between, please just survive.

Thank you for reading!

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This is post 175. Any code I have related to this post can be found here with the same numbering:

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