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  • Writer's pictureRobert Baharian

This one chart...mirror, mirror, on the wall

“The investor who says, ‘This time is different,’ when in fact it’s virtually a repeat of an earlier situation, has uttered among the four most costly words in the annals of investing.” - John Templeton

Markets rise, markets fall, all initiated by something different, yet the domino effect that follows is more or less the same.


In today's chart we look at the the stock market rally that followed the bottom of the stock market in 2009 and in 2020. Both lines start at their respective bottoms (100), and illustrate the return for each rally in the months that followed. The similarity of the 2020 rally to that of the 2009 rally is incredible.

Stock market bottoms are very difficult to predict. No one rings a bell signalling the bottom, and the papers don't issue headlines. No one knows when they will come, and it's not until the market has rallied +20% that you realise what has just happened. Astonished at what just happened, you tell yourself this is a bear market rally and you remain on the sidelines. Meanwhile, the stock market just rose 50%.


I don't know if the market will continue to rally or whether we'll see another decline in prices from here - in fact, I don't believe anyone knows. The best thing you can do is take advantage of these situation is to dollar cost average (DCA) into a down-turn. There's an old saying, don't catch a falling knife - the problem with this is, as I've mentioned earlier, no one can tell you when the knife hits the floor. Sure, you might have blood on your hands for a while, but know this, both the blood on your hands and stock prices will recover. If the 2009 rally is anything to go by, investors might be in for a little surprise.


Sure, this time is different because the cause was different, but understand this, the impact of the cause is the same. Human beings have developed cognitive biases over thousands of years, this isn't going to change overnight.

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