3 Investors Compare the Market Crash of 2020 With the Market Crash of 2008

Very steep market plunges of 30% or more are rare, but they do happen every decade or so. But the crash of 2020 was different from downturns of times past. Fool.com contributors Jason Hall, Jon Quast, and Nicholas Rossolillo discuss their experiences in 2020 and compare them with the Great Recession of 2008-09 in this Motley Fool Live segment from "The 5" recorded on Oct. 1.

Jason Hall: If any of us have been through a real market crash, how related to the March 2020 drop? How do you handle it mentally? What percentage did your portfolio drop? Did you add to your positions, what stocks? How did they fare from the lows from when we bought to date? What Foolish advice do we have to share? There's a lot of questions there. We're not going to answer all of those questions, but I think it's a good opportunity just to take a couple of minutes, and talk about your experiences going through market downturns. I want to say this first before you guys unmute. Guys, this was a real market crash. Just because it was short, it was a very real market crash. Go. You guys are just the nicest guys in the world. Nick, you go.

Nicholas Rossolillo: It was a real market crash last year, for real. The nice thing was you blink and everything was rallying, so that was cool. 2007, '08, and '09, and 2010, I guess for that matter, it was all just one really long continuous slow burn. It just hurt for years.

Hall: Well, there were two crashes. There was the initial crash. Then when Barack Obama was elected, I think the market bounced a little bit, and then it just crashed again before the markets bottom.

Rossolillo: Yeah. 2010 was very volatile. Then 2011 started out good. Then this time of year in 2011, there was the 20 percent plunge in September before it rerallied at the end of the year. Those were really painful years because it was just so long and drawn out.

Hall: To set the dates, the pre-global financial crisis peak was early October of 2007. We're talking all the way into 2011.

Rossolillo: It was rough. I was only a couple of years in investing myself when we hit those peaks in 2007. I was completely lost. I had no idea what to make of any of that. I got really disillusioned with investing and I tried my hand at trading for a while. I think what was so hard about it is there was seemingly nowhere safe to turn except for treasuries and really boring stuff made a nice little uptick in 2008 during the worst of it, but that's not long-term investment. If you missed it, you missed it. There was nothing to ride beyond the spike in '08. That's how I would compare it to this.

I think what's different though this time is how connected the world is. It's much easier to find ideas. Sometimes, the connected world has it's downside still because we're sometimes drowning it feels like in news that we're not sure how trustworthy it can be. But at the same time, you can also find a lot more information that is accurate than you could in the past too.

Also, back in '08, there was no focus on, what is still a long term investment theme? Everything just got clobbered. But in this crisis, we have already very well established certain segments of the economy that are riding these very long-term secular trends. Those trends just accelerated by the pandemic, technology, computing, and just basically how all of that is disrupting the status quo of the world. That's a big difference because it was not a really well established fact yet in 2008. It probably should have been in hindsight, but nobody was paying attention to that. No one was paying attention to the fact that, hey, Amazon (AMZN -1.14%), Microsoft (MSFT -1.84%), some of these other [tech companies] had IPOs since that didn't exist at that time. But we now know really well at this point what is going to be growing for the next 10, 20, 30 years. That's a big benefit that can help you ride out these bouts of really extreme volatility, just stay focused on what is going to continue to grow at a high pace for decades.

Jon Quast: That's really good, Nick. We really appreciate all that. Vihan, to your question here, I can't really speak to the Great Recession crash. I had only just discovered the stock market in 2007, I believe it was, and bought my first stock around then. I'm going to tell a story though, and it's all going to make sense in the end. One of the first stocks that I bought was for my newborn son at the time. You know how when your children are born, relatives and stuff, give you money and stuff and I thought I'm going to invest this for him and then 20 years when he has grown up, maybe it'll be worth something. Well, I bought Bank of America (BAC 1.53%) stock, brand new in investing, put it all in Bank of America, not the greatest strategy. I'm not saying that that is the best thing to do, but that's what I did. I remember in the market crash that happened shortly thereafter.

Rossolillo: When was this, Jon?

Quast: It was either 2006, 2007 that I bought Bank of America. It was around $40 if I recall. By the height of the market crash, it had gotten down to below three, I know. It was in the 2-3 range, maybe 2.50 at one point. It was very brief. But I do remember because I had bought the stock, I was watching Bank of America more than anything in the market. When it dropped down below three, I remember looking at what I had, [laughs] my entire net worth in the world at the time and telling my wife, I'm going to buy thousand shares of Bank of America. There's no way that it goes bankrupt. I'm going to buy a thousand shares and it's going to be everything we've got [laughs] put it on Bank of America.

In the end, I got too scared. I said, what if this is the crash that completely kills the economy for all time? I don't want to invest. In short order the stock was back over 10 and wasn't a couple of years later, up to 20. My point being, that is not the strategy go all-in on one, but I learned a formative lesson. It's that stock market crashes are normal, and that the stock market recovers over time. That was the lesson that I learned in the market crash of 2008, 2009.

Fast forward, really, this past year was the first big crash that I experienced as an investor. I was in a unique position, I had changed jobs. When I rolled over my retirement account, it was all in cash. I'm talking two months before the market crash. I'm sitting on mostly cash and so I invested, I don't remember what percentage of my cash it was two months before the crash. At the height of the crash, my portfolio is down in the ballpark of 50 percent. It was brutal. It was painful. But I had learned the formative lesson that, this does come back.

The one stock that I really nailed the bottom was Square (SQ -1.97%). I bought Square around $50 a share. I'm up something in the ballpark of 350 percent, even after the pullback, it was up over 400 percent for me. Square is actually a very large position for me in terms of dollars invested. It's not as much as others. Now, Jason, if I recall, you were buying aggressively, whereas as the market crashed for me, I said normally I wanted to be data driven. Normally, recoveries are a multi month process at least.

Hall: If not multiyear.

Quast: If not multiyear.

Hall: I think it takes 2-5 years on average when you see a 30 percent market decline, 2-5 years on average for the market to return to its previous high.

Quast: Yes. Those are the stats right there and that was what I base my decision making around. I said, I don't want to get too aggressive here because this is going to play out for a long time. I didn't buy very many stocks there toward the very bottom. Beyond Meat (BYND -0.47%), I got at cheap price. Roku (ROKU 1.91%), I got in at a cheap price. But Square was the one that I really nailed the bottom. But if I recall, you were a lot more aggressive and that must have worked out pretty good for you, Jason.

Hall: It really did, and the reason it worked out, there's a saying, people don't rise to the occasion they fall to the level of their training. The reality is that that's why so many retail investors get hammered by the market. Because the market falls and basic human instinct, fear, and greed kick in and that fear of more losses, the pain of the loss. The pain of loss will always hurt you more than the pleasure of the wind feels good. That's just how we've evolved. Unless you train yourself to understand that, and act accordingly, you're going to sell when the market falls. That's just what so many people do.