Black Monday 1987 remembered
It was 39 years ago today that we experienced perhaps the single greatest lost in stock market history, October 19, 1987, infamously declared Black Monday when the Dow Industrials Average dropped -23% IN A SINGLE DAY! I remember it well as the period when I “cut my teeth.” In the summer of 1987, I had a friend whose mother was an avid stock investor and I caught the bug. I read money magazine and the Wall Street Journal regularly and decided I knew enough to make some money like so many other people were doing.
I had $1,000 saved and decided to buy into the riskiest mutual fund I could find, 20th Century Ultra Fund, in August 1987. Things went swimmingly for a few months until that fateful day when the fund lost -25%. What was I to do? As a novice investor, my answer was simple: SELL! So, I spent 2 hours waiting on a phone rep from 20th Century to take my sell order, only to watch the market recover and regain the losses by yearend. Ugh! I like to tell my clients this was the best $250 loss in my career because it forced me to step back and realize 2 critical realities: I DIDN’T know as much as I thought, and the stock market must be fully understood before seriously investing.
After this shocking loss, I spent the next 3 years reading every book I could find at the library on investing before trying again. Looking back at that time from our sophisticated technology of today, it’s absolutely amazing the changes that have occurred. I used to research stocks using the Standard and Poor’s guide that came out weekly and perusing months-old annual reports and calling companies (with long-distance charges!) directly for updated quarterly reports. Stock prices were in fractions – not decimals; CNBC would not exist for several years, starting as FNN Financial News Network, and we watched Louis Rukeyser’s Wall $treet Week each Friday on PBS. He was such a cool, suave guy; nothing seemed to alarm him. And investors used stockbrokers – not advisors – to place their stock trades, paying commissions on each trade.
Black Monday was the quintessential Black Swan event. It was the day “the robots took control” as brokerage automated sell programs took the reins and began selling everything en masse. It, along with investing through the 2000 dot.com crash, and the GFC of 2008-2009, is probably the reason I tend to be skewed conservative versus the general market. In contrast, these events presented incredible opportunities for the investor willing to buy “when there’s blood in the streets,” quoting J. Paul Getty, which I’m also prepared to do when that time comes again, which it will.
