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May 19, 2021

How Past Market Events Changed Investor Behaviour Today

Those of us who have gone through different market regimes would notice investor behaviour today is very different than twenty years ago, or even a decade ago. But that doesn’t mean there aren’t similarities today to past market events.


Let’s look at three significant market events to see how…


1. The tech bubble


What happened?


About twenty years ago we saw the tech bubble and its burst. Initially driven by greed, it eventually burst because of realities – the reality that some companies were overvalued as they had no earnings and no credible plan to do so, and the reality that tighter central bank monetary policy shut new cash flows within the bubble.


Some tech companies did survive and their businesses evolved (Microsoft Corp., Cisco Systems Inc. and Inc.) but many did not. A prime example is, which raised US$82.5 million in a February 2000 initial public offering (IPO), only to file for bankruptcy nine months later.


The impact


In total, the Nasdaq Composite Index took 942 days to bottom from its peak – the drawdown was 78%! Over the next 4,546 days, the index recovered to its previous high as new companies were added and others strengthened their business. Over the long term, these events set up a period where investors sought downside protection and diversification.


2. The global financial crisis


What happened?


Moving past the mid-2000s, stock markets became unattractive for short-term gains. Speculators, once again driven by greed, found themselves investing in housing and complicated financial instruments tied to mortgages in the U.S. Like all bubbles, it worked for a while, until it didn’t. Some too-big-to-fail financial giants went bankrupt and rocked the global financial system and stock markets.


The impact


It was here that the concept of the central bank bailout was first introduced. The U.S. Federal Reserve dropped interest rates to zero, an unprecedented move, and introduced “quantitative easing” – the printing of money. When this large amount of “new” money was introduced, it effectively rescued prices. The S&P 500 Index fell 53% but bottomed in less than a year.


The following decade saw an asset price boom. Those who owned assets have became a lot wealthier and those building assets faced challenges as asset prices grew faster than their income. The side effect was a widening wealth gap that continues to diverge.


3. COVID-19


What happened?


In 2020, the world faced a new challenge – COVID-19. Investor confidence collapsed and gross domestic product (GDP) was expected to fall dramatically as people stayed home and many businesses were forced to close. To offset, governments and central banks globally reacted swiftly with trillion dollars of spending, quantitative easing and low interest rates.


The impact 


Learning from past experiences, investors quickly foresaw that asset prices were set to rise, regardless of the pandemic. The S&P 500 index fell 34% in 33 days and took 148 days to hit the previous high. That’s only 181 days from peak-to-trough and trough-to-peak – and it was over before there was even a COVID-19 vaccine. Compare this to the 5488 days for the Nasdaq tech bubble recovery.





Number of days to bottom

Number of days to recover

Tech bubble

Nasdaq Composite Index




Global financial crisis

S&P 500 Index




COVID-19 pandemic

S&P 500 Index





Lessons from the past


Investor behaviour is driven by recent memory. Two decades ago, investors cared for downside protection – diligent investment selection and diversification – as no one would bail you out if you failed. Since the global financial crisis, investors have become accustomed to central banks providing downside protection so markets can carry on. And they’re not entirely wrong. Money supply as tracked by the balances at major central banks added US$10 trillion dollars in ten years after the global financial crisis. We are on track for another US$10 trillion dollars by end of 2021 to counter the financial impacts of COVID-19 – that’s five times higher than the 2008 level!



It’s hard to know if the concept of central bank intervention will be valid for the next decade. We do know quantitative easing and the new money added in the last decade and a half is here to stay. Thanks to central banks, the global financial crisis cycle was 71% shorter compared to the tech bubble. The pandemic was a further 88% “improvement” as investors learned from the global financial crisis.


Lessons for the future


While investors may not have confidence in the economy or their day-to-day life right now, they have learned to be confident in central banks’ ability to prop prices up. But what they should care about is the purchasing power of their money as more is printed and being prepared for when the regime or behaviour changes again. Not all trough-to-peak recoveries are achieved in 148 days.


At the end of day, the ultimate goal of investing is to create financial security for your future. Investors need to strike the appropriate balance between protecting their savings against permanent losses while ensuring that they are taking enough risk to achieve the growth required to meet their financial objectives. We believe that active management and strategic asset allocation remain key components to a sound financial plan, even as markets rally. It’s our job to identify and manage all the variables that can influence returns to help keep you on track.


Learn more about our multi-asset solutions and the role they can play in your portfolio.


Source: Bloomberg Finance L.P. and CI Global Asset Management as at March 31, 2021.

About the Author

Marchello Holditch

Marchello Holditch, CFA, CAIA

Vice-President and Portfolio Manager
CI Multi-Asset Management

Marchello Holditch, CFA, CAIA, Vice-President and Portfolio Manager, oversees CI's multi-manager, multi-asset investment programs. He is responsible for managing CI’s institutional and private client multi-asset portfolios and is a member of the CI Multi-Asset Investment Committee. Previously, Mr. Holditch led CI’s portfolio manager research and oversight function, where he was responsible for evaluating the investment managers of all CI funds. Prior to joining CI, Mr. Holditch worked at a major global consulting firm, where he assisted a wide variety of institutional clients with risk budgeting and asset liability modelling, as well as investment manager research and selection. He holds an Honours Bachelor of Mathematics degree in actuarial science from the University of Waterloo and is a CFA charterholder.

About the Author

Alfred Lam

Alfred Lam, CFA

SVP, Head of Multi-Asset
CI Multi-Asset Management

Alfred has more than 18 years of experience specializing in portfolio design, asset allocation, manager and fund selection, and risk management. While at CI Global Asset Management, Alfred has brought unique ideas and processes to the management of the team’s multi-asset strategies, including a mean-reversion currency management strategy, the concept of investing in concentrated and benchmark-agnostic portfolios, and a new approach to risk management. In addition to the Chartered Financial Analyst (CFA) designation, Alfred holds an MBA from the York University Schulich School of Business, and is a member of the CFA Institute and the Toronto CFA Society.



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Published May 12, 2021.

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