October 19, 2012
Over the better part of 30 years I have seen plenty of ups and downs in the financial markets, but nothing compares to the bedlam - the pure panic - that gripped Wall Street and much of the rest of America twenty five years ago today. It was October 19, 1987, and when the New York Stock Exchange opened that morning, we were off to a weak start that got weaker all day, as investors saw stocks slump 508 points, a 23% drop. Wags immediately started calling it Black Monday. To this day we have never seen a bigger one-day decline, and I am hopeful not to have that record broken.
There was no internet, of course, no financial channels on cable, but TV and radio stations broke into regular programming to alert people to the meltdown. The computer systems that the exchanges used had difficulty handling the volume of transactions, and some major brokerages teetered on the edge of insolvency. At the office where I worked, most of us stayed until after 9 pm, taking calls from clients. Then we dragged ourselves - hoarse, tired, and stunned - out to some downtown bar that was not surprisingly filled with colleagues from other firms. We all hoped our employers would reopen the next morning - it was far from certain that they would.
In the end, some firms were mortally wounded by the crash and had to merge. Mine, EF Hutton, was one. But the economy wasn't tipped into depression as some suggested would happen, and markets gradually recovered. No crashes, no bear markets, are ever the same as previous ones. Trying to predict the size and duration of the next one is like generals who always seem to be preparing to fight the last war. The investors who came out of Black Monday in the best shape were those who selected high quality investments, stayed informed, and held their investments if nothing in their reason for investing had changed. That has remained a sound basis for investment decisions and will serve well in the next crash - whenever that might be.
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).