When Markets Crumble...

Lessons from 2020 and Capitalizing on the Next Market Meltdown

The March-2020 crash was one for the history books. As the flu-like virus—trivial for everyone except the very old or very sick—spread, panic gripped the markets, leading to a swift and severe collapse. The S&P 500 plummeted 34% from its February peak to its March low, one of the sharpest drops in history.

But stocks weren’t the only casualty; it was financial carnage across the board. REITs nosedived over 40%. Copper, the economic health barometer, dropped nearly 30%, and corn futures fell 20%. Oil prices shockingly went negative, something we’d never seen before. Even Bitcoin, the supposed market hedge, plunged over 50% in a day.

Gold and silver didn’t escape the initial turmoil either, causing double-digit drawdowns in precious metals mining stocks.

Crisis = Danger + Opportunity 

Those were nerve-wracking times, no doubt. But it was also a golden opportunity to load on some top-notch assets at fire-sale prices, simply because everyone else was running for the hills.

Yes, the S&P 500 took five months to recover, but once it did, it just kept on climbing. Just take a look at the graph above. Gold stocks, on the other hand, bounced back in barely a month. By July, they were up nearly 120% from their March 2020 levels.

The point is, whether it was junior gold mining stocks at a 70-80% discount, physical silver under $12 per ounce, Bitcoin at $5,000, or anything else, those who bought when everyone else panicked made a killing. For many, the 2020 COVID-19 crash was the buying opportunity of a lifetime.

I bet many of you know exactly what I’m talking about. Almost everything did well after the March 2020 crash, and some things did spectacularly well.

But here’s the thing. Profiting from the March-2020 crash was only "easy" in hindsight. Many people chickened out at the moment of truth, when share prices went into freefall. Others wanted to act but lacked the liquidity to move.

Preparing for the Next Big Crash

Why am I telling you this? Simple. It's 2024, four years later, and we sense we're approaching another pivotal moment similar to March 2020.

In fact, we already got a taste of it last month. On August 5, a sharp downturn across multiple asset classes rattled markets (driven by the collapse of Japan's yen carry trade), reminiscent of the early stages of the March 2020 crash. The Dow Jones dropped over 1,000 points and the S&P 500 fell 3.1%, erasing $2.1 trillion in market value.

As panic spread, oil plummeted to $73 a barrel, its lowest level in over a year. Bitcoin dropped from $60,000 to $50,000 within hours. Tech stocks, commodities across the board, and even gold took a beating.

To be frank, I was struck by the U.S. market's dramatic reaction to the events in Japan. The speed and scale of the sell-off were strong signals that investors were already on edge. All they needed was an excuse to hit the panic button.

Even though the markets recovered from this event, nothing has fundamentally changed. Recession fears still loom large, markets remain jittery, and the world is as interconnected as ever, exposed to black swan events like COVID-19 that can disrupt everything (through the knee-jerk, heavy-handed responses of governments). Meanwhile, as I talked about in a recent essay, the U.S. and China are suddenly eager to work together on handling future "financial stress events.”

It feels like all it would take is the faintest trigger—like the snap of an air gun in a crowded theater—to send everyone rushing for the exits again. I don't know what that could be: another pandemic, a systemic financial crisis overwhelming our fragile system, or something else entirely. But whatever it is, it'll cause a huge panic in the markets and create major buying opportunities. Being ready to act on them could pay off big.

But, again, that’s easier said than done.

To pull it off, you need to be a contrarian investor. That means having the courage to back up the truck for stuff no one else wants.

Regards,

Lau Vegys

P.S. Being contrarian and uncovering value amid all sorts of crises are exactly what our Crisis Investing newsletter is all about. With one potentially now brewing on the horizon, Doug, Matt, and I have recently prepared a special issue that shows how to turn market chaos into money-making opportunities.