Dan Rasmussen – Investing Through a Crisis

**Patrick O'Shaughnessy** (0:00)
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Hello and welcome, everyone. I'm Patrick O'Shaughnessy, and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, methods, stories, and of strategies that will help you better invest both your time and your money. You can learn more and stay up to date at investorfieldguide.com.

**SPEAKER_2** (0:56)
Patrick O'Shaughnessy is the CEO of O'Shaughnessy Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Shaughnessy Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions.
Clients of O'Shaughnessy Asset Management may maintain positions in the securities discussed in this podcast.

**Patrick O'Shaughnessy** (1:20)
My guest this morning is Dan Rasmussen of Verdad Capital. Like me, Dan and his firm focus on quantitative research. Just a month ago before the COVID crisis hit markets, they completed and published a study on investing during periods of market crisis, which is the topic of this conversation.
We discuss what works and what doesn't during and after acute periods of panic in markets. I think you'll find it extremely informative. Because Dan's firm and my own share many beliefs about investing and conduct similar flavors of research, I try to offer devil's advocate questions throughout. Please enjoy.
Dan, great talking to you. Great to do this on short notice. I really appreciate it. I think a great place to start given your area of focus and specialty would just be on a lay of the land what you've seen thus far in parts of the market that you focus on in your portfolios. And then I want to go pretty deep into a study you put out not that long ago about investing through periods of crisis and really take it piece by piece to share with the audience the lessons that you learned I think in a two-year research project. So this was not some reactive thing in response to COVID, but a long careful study that you and your team have put together. So maybe you could begin with the lay of the land and then we'll dive into the research.

**Dan Rasmussen** (2:33)
This has been a very fast moving sell-off, one of the fastest moving sell-offs ever, and it's been very dramatic. Obviously we're nearing a 30% almost drawdown in the S&P 500, small cap typically gets hit at worst, it's down nearly 40%.
International small value holding up a little bit better, but still mid 30s draws. So this is a pretty painful drawdown, probably the worst we've seen since 2008 in the data. We looked carefully at the high-yield market as well. That market has sold off sharply.
Triple Cs, which are the worst part of the market for high-yield are down 15 since the end of January. Single B is down 10, double B is down 7, and then getting into investment grade. Level A is down 1%, single A is down 1%, triple B is down 5%. That's even with the rates dropping. So it's been a punishing time to be in small cap value, punishing time to be in high yield, although relatively much less than being in the stock market.
And even people in the S&P 500, I think, are feeling a lot of pain.
And when you are talking to people, I think you meet a range of different reactions from people from, can you please show me the comps to 1929 to should I start buying now or should I wait a few days? So you're seeing, I think, the very wide spectrum of reaction from folks from near total panic after a sharp drop in the market to folks salivating to get back in. But I would say this is a once in a decade type selloff. And historically, if you look at the previous times when this type of selloff has happened, you've tended to see losses that range, let's say, 20% plus drawdown in the S&P 500 From here, if you look at 1987, maybe this is the bottom. If you look at 2008, it could go down another 30% or 40%. So a lot of uncertainty, it's gone down a lot, and we don't necessarily know when things will hit the bottom, not that we ever do.