The COVID-19 Crash and the Investor’s Test: Lessons Learned from a Historic Market Downturn
In 2020, the COVID-19 pandemic caused unprecedented global economic turmoil, presenting a major challenge for investors worldwide. As the markets plunged and circuit breakers were triggered repeatedly, I faced a pivotal moment as an investor where my ability to remain calm was truly tested.
In this article, I’ll share my raw emotions during that time, a comparison to past market crashes, and the invaluable lessons I learned from this experience. If you haven’t already, I recommend checking out last week’s article:
Chaos on the Day of the Circuit Breakers: Watching the Market Panic Live
During the COVID-19 crash, circuit breakers (temporary halts in trading) were triggered multiple times. I vividly remember watching live market coverage on YouTube. The atmosphere was chaotic, and commentators expressed confusion, repeatedly admitting, "We have no idea what will happen next."
As stock prices continued to plummet and trading paused, the tension was palpable. Adding to the chaos, oil prices briefly turned negative—a historic event. I experienced a mix of fear and excitement, realizing, “This is a moment for the history books.”
Amid this turmoil, many investors succumbed to panic selling, exiting the market entirely.
Placing the COVID-19 Crash in Historical Context
To better understand the unique nature of the COVID-19 crash, let’s compare it to previous major market downturns:
| Crash Name | Date | Decline (%) | Recovery Period (Months) |
|---|---|---|---|
| Black Monday | October 1987 | ~22.6 | ~3 |
| Dot-com Bubble Burst | March 2000 | ~49.1 | ~25 |
| Global Financial Crisis | September 2008 | ~56.8 | ~22 |
| COVID-19 Crash | February 2020 | ~33.9 | ~5 |
The COVID-19 crash, while less severe in decline compared to the dot-com bubble or the global financial crisis, stood out for its rapid pace. Notably, the recovery period was just five months, driven by swift policy responses from governments and central banks worldwide.
Why I Invested in ExxonMobil (XOM) During the Crash
One of the key investments I made during the COVID-19 crash was in ExxonMobil (XOM). With oil prices turning negative and the entire energy sector under pressure, many investors were pulling out. However, I decided to buy XOM shares for the following reasons:
- Analyzing Free Cash Flow (FCF):
Despite a decline in free cash flow, ExxonMobil had enough financial strength to maintain its dividend payouts. I placed confidence in the company’s more than 40-year track record of consecutive dividend increases. - External Factors Behind the Price Drop:
The pandemic was the primary cause of the market decline—not a fundamental issue with the company itself. - Long-term Demand Recovery Projections:
While oil demand plummeted in the short term, I anticipated a recovery as economic activity resumed. Even with the rise of renewable energy, I believed oil would remain an essential energy source for the medium term.
Following my purchase, XOM’s stock price surged alongside the market recovery. Last year, I sold part of my holdings at nearly double my purchase price, securing significant profits.
Lessons Learned from the COVID-19 Crash
This experience taught me several crucial lessons as an investor:
- The Importance of Staying Calm and Thinking Long-term:
Remaining calm in a market dominated by fear is essential. Success depends on focusing on a company’s intrinsic value rather than short-term price movements. - Market Crashes are Opportunities in Disguise:
While crashes often spark panic, they also present rare opportunities to buy high-quality stocks at discounted prices. - Dividend Investing Provides Emotional Stability:
Dividend income served as a source of psychological comfort during the turmoil, allowing me to stay focused and think rationally. - Balancing Risk and Opportunity Requires Courage:
By resisting the herd mentality of excessive fear, I was able to take calculated risks, which ultimately led to significant returns.
Conclusion: Growth as an Investor and Future Goals
The COVID-19 crash was a defining moment that helped me grow as an investor. While the memories of circuit breakers and market chaos remain vivid, the experience taught me far more than it cost me.
Market crashes are both a test and an opportunity for investors. By leveraging the lessons learned from this experience, I aim to continue making sound, disciplined investment decisions.
I hope this article provides valuable insights to support your own investment journey!