October 19, 1987- The First Great Crash of the Modern Era

October 16, 2017

 

This being the 30th anniversary of the 1987 crash, or "Black Monday," those that lived through that day are recalling their experience with it. This is a huge piece of market history, and, fortunately for short memories and better outcomes, we can laugh at it now. But it was quite unnerving back then. It remains, surprisingly, the biggest one day drop in the history of the stock market. And it wasn't that bad for us, relatively speaking. Markets in Hong Kong, Australia and the U.K. were hit even harder.

 

Seeing that the only means of electronic communication in those days was the radio, which I kept on in the background in my office, I was alerted to the massive panic taking place. It got progressively worse as the afternoon rolled on, and images of 1929 were rolling around in people's heads. The market was crumbling, and as the afternoon wore on, fast.

 

But as someone who was investing for awhile, and thought reading Value Line reports was an idea of a good time, I saw nothing but bargains. I called my broker at Kidder, Peabody and told him to buy all the General Electric shares my cash would allow at a certain price, which I deliberately low balled. And he said the words I would never forget, even thirty years hence:

 

"Kid, ya got guts. And guts deserve to be rewarded."

 

I mean, there was genuine panic selling out there, so for him to get a call like mine in the midst of this must have been something. I forget what price I specified, but I deliberately low balled it. There was no internet, and trade tickets were still written out by hand, and "dropped," in those days. I later realized I could have gotten the shares even cheaper, because people were just selling at ANY price, and for a time, the bottom really had dropped out, and the bid/ask was just completely off the rails. You simply tossed out a ridiculous price, and your order got filled. In any case, it was still cheap.

 

Guts were rewarded. This is GE's chart from January 1987 to July 1990.

 

 

 

To this day, the causes of the crash are still something of a mystery. Some blamed "program trading," the precursor to today's algorithmic trading, for the downturn, as each successive down-leg in the market spurred another round of sales. A few reforms, like the introduction of "circuit breakers," to halt trading if market swings got too wide, were deployed.

 

What was remarkable about the '87 crash is that it seemed to have little effect on the overall economy. In fact, the economy performed fairly well in its aftermath. Employment, for example, was quite stable until the recession that began in mid 1990. So it was nothing like 1929 or 2008, but of course, those debacles had other levers at work. But in all three cases, the market always came back.

 

I have always been captivated by the market's ability to change lives and empower the fortunes of ordinary people. This episode only strengthened that fascination, which I carry to this day.

 

 

 

 

Please reload

Featured Posts

The Fed is Just KILLING Us With These Low Interest Rates!

April 6, 2015

1/5
Please reload

Recent Posts

January 6, 2020

August 1, 2019

December 25, 2018

Please reload

Search By Tags

I'm busy working on my blog posts. Watch this space!

Please reload

Follow Us
  • Facebook Classic
  • Twitter Classic
  • Google Classic

FloMartin Securities, Inc.

Donald R. Davret, Investment Advisor Representative

www.sec.gov

www.sipc.org

 

Investment advisory services are offered through FloMartin Securities, Inc, an Investment Advisory firm. The firm only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements.
All investment strategies have the potential for profit or loss. Changes in investment strategies, economic conditions, contributions or withdrawals may significantly alter a portfolio’s performance. There is no guarantee that any specific investment or strategy will be suitable or profitable for a particular client. Past performance is no guarantee of future success. We cannot guarantee that a portfolio will match or outperform any particular benchmark. None of the content should be viewed as an offer to buy or sell, or as a solicitation of an offer to buy or sell the securities discussed.



This website is a publication of FloMartin Securities, Inc. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change.​


Information on this website does not involve the rendering of personalized investment advice, but is limited to the dissemination of general information on products and services. A professional adviser should be consulted before implementing any of the options presented

  • Wix Facebook page
  • Twitter Classic
  • Google Classic