What were you doing on 19 October 1987?
Posted on October 17, 2007 by Richard Beddard
Filed Under Markets |
Friday is the 20th anniversary of ‘Black Monday’, when the Dow Jones fell 22.6%. The FTSE All-Share fell 20% in two days. Most investors can remember what they were doing then and, for some, it changed their lives.
Peter Lynch starts my favourite investing book, ‘One Up on Wall Street’, reminding readers:
You can’t bring up the stock market these days without analyzing the events of October 16-20.
Mr Lynch was on holiday with his wife in Ireland:
That night at Doyle’s, I couldn’t have told you what sort of seafood meal I ate. It’s impossible to distinguish cod from shrimp when your mutual fund has lost the equivalent of the GNP of a small, seagoing nation.
Twenty years on from Black Monday David Schwartz, stock market historian, says:
What you have to remember is the absolute stomach churning panic. Just blind panic. The pain. You came to work on Monday; you were expecting to get a bloody nose. You came in the following day and you got it again. Wall Street started rising at 11.00 their time on Tuesday, and of course the [London] stock market was closing by then.
A frothy stock market, signs of economic malaise and a hurricane that struck the South East of England triggered the biggest ever one-day sell-off in New York, and two days of frantic selling in the UK. Portfolio insurance, preprogrammed sales designed to protect investors from sudden drops in the market that in practice exacerbated them, turned the crash into a perfect storm.
Edmond Jackson was a young private investor who’d made his money on a spate of privatisations in the mid 1980’s. He’d been worried all summer:
I’d been reading things like Sir James Goldsmith going completely to cash. You’d see all this spivery: entrepreneurs gaining control of shell companies. They were setting up holding companies in financial services, property and distribution. So long as you had that mix of things people got very excited, regardless of the intrinsic value of the investments.
He says he’ll never forget the headline on the weekend edition of the Financial Times:
“Dow falls 108 points as Wall Street accepts the party is over”…
I went up to see a friend who was studying economics at Oxford. We had this discussion about it… And… On Monday morning, I got on the phone to a broker. Everything was moving very fast. I got some grey prices at about twenty-five past eight and managed to get shot of what I had.
Peter Temple was another who got out just in time:
I made quite a lot of money in a portfolio of small cap stocks in the mid ‘80’s. In early ‘87, my father died and my mother was left on her own and one of the things we decided to do was buy a property near where she lived. I agreed that one of the ways this would be funded would be by selling a lot of the stocks that I’d built up.
But, for neither Peter nor Edmond was there an unreservedly happy ending. Edmond says:
The mistake that I made was I didn’t buy back…
After reading the Intelligent Investor by Benjamin Graham, he decided he should be more sanguine about fluctuations in the stock market. Although some people sold for cash during this year’s credit crunch, he didn’t.
Peter was a director of research at Hoare Govett, and on a two-week tour of the United States:
I was actually in Chicago on business and was woken… in the middle of the night. I had a phone call from my assistant saying I should phone home because something happened. A tall chimney stack had broken in the storm and come through the kitchen ceiling. It was an absolute miracle that no-one was killed. My wife was left to deal with it. The dog was in shock. The neighbours rallied round and it took until Christmas to fix the damage.
More misfortune was to come:
The broking business in the immediate aftermath went from bad to worse and in January I lost my job. It was one of these typical City sackings, fairly brutal and not the sort of compensation people would get now. I was so disgusted by the way I’d been treated, I decided I didn’t want to have anything to do with working for a firm in the City.
Hence he became a self-employed writer and analyst.
Although Peter held Hawker Siddeley and a diminished portfolio of smaller company stocks through the crash, he was busy rebuilding his house and career. He too missed the recovery:
What had happened in the crash was so alarming you wondered whether you did want to go back in. Particularly as I was in the US and the sort of reactions you were getting from people were quite graphic.
An investor relations executive and former analyst at American Brands, a tobacco company, told him how his teenage daughter had asked:
Daddy, are we going to be poor again?
John Mulligan had just set MD Management in Cheltenham, a small boutique investment company he still runs:
The combination of the gales and the market made one think that Armageddon was upon us. I remember clients calling and asking if they should sell everything. I advised them not to. Only one sold at the bottom of the market… The interesting thing was by the end of the year the market was up [on the year].
He didn’t sell his own investments either; he’d seen it all before:
When I started work in the City, it was the time of the Cuban Missile Crisis. That was another very scary moment. It looked as if we were going to have a nuclear war and Khrushchev was sailing his flotilla across the Atlantic. Stock markets then were really dodgy, but of course, the whole thing was much less covered generally.
And, just as it had for Peter Temple, Black Monday proved pivotal for John’s career. He spent four years researching a method to insulate investors from the gyrations of the market. The result was STAR, the mechanical stock picking system he invented.
Believing that gains of 30-40% earlier in the year and a more recent rally were unsustainable, David Schwartz had taken a down bet in the options market a few weeks before Black Monday. Although he traded from home by telephone, his young daughter was unwell, and his house in Hampstead had been without power since Thursday, the night of the hurricane. It was 2pm before he checked the state of the market:
Wall St had gone down 100p on Friday and we were locked out because the hurricane. You already had a sinking feeling in your stomach even before the trading began.
What I remember was that hidden in the numbers of a 10% drop on Monday and another 10% on Tuesday, there was some sort of very violent price swing I can’t put my finger on… My emotions were very much like a high-speed elevator out of control but it [the market] was much more volatile…. Nobody really remembers that now, and all they remember is prices dropped. There was a lot more excitement than just wanting to shoot yourself.
In fact, the down bet paid off more than ten times over. Not the best trade he ever made:
The best trade I ever made was, I bought a house in the UK!
He jokes. But…
…Talk about leverage… Wow! To be honest, it was total luck. I only expected to make a few quid.
Another misconception about Black Monday, says Mr Schwartz is that:
Everybody says, “Oh my God. The world ended on Black Monday”. In fact, the market went down in July and then recovered. By Black Monday, the market had been trending down again for two weeks or so. The music had come to an end that summer. The huge decline was sudden, it took everybody’s breath away. But the notion it was a bull market and it suddenly turned, that’s out and out wrong.
All of the problems that were affecting the UK stockmarket that eventually caused the music to stop were known in mid-July 2007… Why economic events are ignored for so long and then reacted to, is the puzzle.
Ceri Jones was editing Financial Adviser in 1987. She’d taken the day off to help a friend move house. Her memories of Black Monday are not unlike my own, and have little to do with the stock market.
Ceri had taken the day off to help a friend move house. She was slaloming past trees in a removals van.
I’d just graduated and was spending a short time with my parents adjusting to the concept of ‘work’. That weekend, I’d arranged to go paint balling, playing at soldiers with old school friends armed with guns that fire ink pellets in a local Sussex wood. The trees, though, were on their sides, not standing up, and the sport of paint balling had turned into trench warfare.
It was not unlike the experience of my more seasoned colleagues in the market that day.
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14 Responses to “What were you doing on 19 October 1987?”
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Suckling my mums breast, I was 3 months old!
Very interesting.
I was an investment analyst at Phillips and Drew when Wall Street fell by more than fifth. I lived near Sevenoaks (then “Oneoak” after the great storm of 15 October). Our village was cut off to vehicles, there was no electricity. The fire was on, we had eaten some disgusting BBQ food and my wife was pregnant with our second child (with birth imminent). My colleague,Graham called mid-evening to say Wall Street had closed 500 points down. I thought it was the end of the World……..
The 87 crash! Is that the very small kink in the 30 year chart? As a monthly, not daily trader, I rode that storm and several others. Did I miss some sell high buy low opportunities - yes of course I did. But am I still a winner after 30 years of modest equity trading - yes! QED - keep trading / keep calm/ keep winning!
At the time, I was a Policeman, on duty in West London when news came in of things going badly wrong with the market. My knowledge was limited and I didn’t have much invested, but enough. With no access to the internet, unable to get hold of any brokers and lack of credible news, it was indeed ‘the absolute stomach churning panic. Just blind panic.’
Now, twenty years on, it’s all forgotten. I’m better off, still play the markets and life is good, but at the time it was very scary. I was used to being in control, but not that day!
I was a motorbike courier. Visiting lots of offices during the day was interesting to say the least. Weather was murder. Probably worst shift I ever did. Didn’t have one single penny invested as it was hand to mouth in those days.
I agree with Dave (boy). If you have not got out before the crash then there is little point getting out during the crash. History is on your side that the crash will more likely be a correction and should have little consequence to long term investors who regularly review their holdings. However, there are so many caveats as to why you can legitimately ’sell fast’ during a crash that you could write a whole blog on it. I wouldn’t as I have no ’sell fast’ rules in place.
However, unfortunately for most people, the one reason why they should not get out is the one reason why they inevitably do get out. Their strategy has no rules in place for dealing with a correction of this magnitude and they make a panic decision. I call it the “headless chicken” strategy
I was at University studying finance….despite the low level of my grant I was able to stretch to the FT.
There was total panic - it was the first time that people realised the global nature of markets and that shares really can go DOWN as well as up….
At the time stock markets were at all time highs, house prices expensive by all historic measures, oil/commodities expensive, US trade defict out of control, risk underpriced and liquidity was everwhere.
NO PARALLELS TO TODAY THEN !!!
Hi folks,
Thanks very much for your memories, I enjoyed reading them all. As someone who’s first memory (as a practitioner) of pain in the markets was the prolonged death of the dot.com boom, it’s difficult to imagine the goings on of 1987.
I was at Phillips and Drew with Tony Williams (above). Living in Newbury we had missed most of the storm, but arrived in Paddington and had to walk to Oxford Circus before grabbing a cab. At 8.30 am Rudy Muller, the boss, came on to the trading floor and said “dont panic” its only a temporary setback. AT 9.30 with the markwt another 100 points or so lower he appeared again, and said “Dont panic”. aT 10.30, down again, he appeared again and quitely went up to the head dealer and whispered, OK Panic!
At that stage I bought the future and made a nice intra day profit.
Fidelity had queues around the block in New York and were dumping London shares to get liquidity for their funds, so we suffered more than we probably deserved. Most firms took their phones off the hook, but we did not and took a big loss on the day. It was the end for any residual independence from UBS…
PS If you want some fun by a “magnificent mouchoir” hankerchief with the FT prices page. It has the prices from October 1987.
Very interesting!
I certainly wasn’t smart enough to sell before Black Monday. But afterwards I did a calculation and worked out that the amount I lost was almost exactly the same as the capital gains tax I would have paid if I had sold out beforehand.
Michael
Have we learnt anything at all from this 1987 crash?
Yes, Ms Maher, I think we have learnt some lessons from 1987:
a) Don’t plant any trees too near your house.
b) Don’t sell shares when they’re going down if the fundamentals are still good (if they’re not good you shouldn’t own that stock in the first place).
c) Buy on the dips.
d) Don’t gamble with money you can’t afford to lose.