Crises test every strategy. We examine two very different episodes: the 2008 Global Financial Crisis and the 2020 COVID crash. How did a simple momentum tilt fare compared to NIFTY (TRI)?
2008 — Deep & Prolonged
- Drawdown: Sharp and extended decline. Momentum strategies often moved to cash late due to market whipsaws and false signals during the volatile descent.
- Recovery: Slow and grinding. Return sequences punished investors taking early withdrawals, especially in momentum portfolios that experienced larger drawdowns.
- Impact: Multi-year bear market tested the patience of active strategies. Those who stuck to systematic rules eventually recovered, but the path was painful.
2020 — Fast Crash, Faster Recovery
- Drawdown: Violent but short-lived panic selling. Momentum strategies that re-entered on strong follow-through signals captured much of the V-shaped recovery.
- Recovery: Remarkably quick with unprecedented fiscal and monetary stimulus. Sequence risk was lower for plans starting after the March 2020 trough.
- Impact: Demonstrated that crash speed and recovery shape matter enormously. Fast reversals can favor momentum if signals are well-calibrated.
Key Takeaway
Sequence and market regime matter profoundly. The same strategy can thrive in one crisis and struggle in another. When evaluating momentum versus passive approaches, always compare after-tax returns with realistic withdrawal assumptions across multiple market cycles. Past performance in one crisis doesn't predict behavior in the next.
Run Your Own Stress Tests
Use StratLab to backtest how momentum and NIFTY TRI performed during these crisis periods with your own tax assumptions and withdrawal rules
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Disclaimer: This article is educational only and not investment advice. Historical analysis does not guarantee future results. Assumptions and parameters significantly affect backtest outcomes.