Lyndon Baines Johnson became President of the United States at a moment of national trauma, and left office at a time of tremendous political division. Despite a landslide electoral victory in 1964 and notable legislative achievements, his was not a happy presidency. LBJ observed, in fact, that “being President is like being a jackass in a hailstorm. There’s nothing to do but to stand there and take it.”

Regardless of whether it’s true of the presidency, Johnson’s analogy was clearly applicable to equity investors in 2020. Consider the vicissitudes of the S&P 500^®:

• The year got off to a good start, as the market rose by 5.1% until peaking on February 19.
• Then began one of the most precipitous declines in market history. The S&P 500 fell by -33.8% between February 19 and March 23. (In the global financial crisis of 2007-09, the comparable decline required a full year.) When the market closed on March 23, the S&P 500’s year-to-date total return stood at -30.4%.
• In an extraordinary rebound, the S&P 500 rallied by 61.4% between March 23 and September 2.
• This was followed by a -9.5% decline until September 23, a 9.3% gain through October 12, and a -7.4% decline through October 30.
• The year ended with a gain of 15.2% in November and December.

Between March 23 and year-end, in other words, the S&P 500 rose 70%. What did an investor have to do to benefit from this remarkable turnabout in the equity market?

Nothing. We’ve argued before that sometimes successful portfolio management requires holding positions when one’s natural instinct is to sell, and 2020 provided an emphatic demonstration of that principle.

Although last year’s recovery was unusually large, Exhibit 1 shows that it was by no means unique. Over the last 30 years, the annual total return of the S&P 500 has averaged 12.2%. But it’s rare for the market to rise without a pause; in 27 of those 30 years, at some point during the year the S&P 500 has had a negative total return. Across all 30 years, the total return at the year’s low point was -9.1%. The average recovery from the annual low has been 23.8%.

(Click on image to enlarge)

Even in extreme declines, standing firm can pay off. There have been ten years (including 2020) when the S&P 500’s peak-to-trough decline exceeded 15%; in half of them, the market finished in positive territory. A year later, the gain from the bottom averaged 38%.

Market history tells us that selling can be most damaging precisely when it’s most tempting. The key to success in 2020 was resisting the urge to panic when panic seemed like the most reasonable path. Like Johnson’s proverbial jackass, the only requirement was “to stand there and take it.” Investors who tolerated the downdrafts were well-rewarded by year-end.