We tend to have short institutional memories. Sure, we all probably remember our first prom or the birth of a child but big events and their historic importance fade with time.
Imagine waking up tomorrow and the headlines of the paper read:
STOCKS PLUNGE 5233 POINTS
DOWN 22.6%
$4.4 TRILLION LOST
Thirty years ago, on October 19th of 1987 this actually happened in today’s dollar.
Black Monday, the Stock Market Crash of 1987. I was there, a young broker at Merrill Lynch. We all thought the world was over. There was little reporting on trades of the day, chaos reigned and many of the floor specialist firms that provided liquidity to the market struggled to remain solvent. Tuesday morning many large Dow stocks delayed opening and the markets fell another 5%. Markets around the world followed. This was clearly a global crisis of historic proportion.
TIME MAGAZINE COVER
(Picture color scheme of red fading to black)
THE
CRASH
After a wild week on Wall Street, the World is different
Let’s look at some important facts. During the dog days of summer in August of 1987,
Americans watched Nightmare On Elm Street or Arnold Schwarzenegger at the movies and their stocks were doing well with the Dow Jones Industrial Average trading at 2722.
Two months later the stock market started showing weakness. In the week preceding Black Monday, the stock market was off over 9%. This was the worst week in over two decades. There was substantial selling as the Dow opened Monday, many floor specialists did not open trading for the first hour. The SEC chairman, in comments following a speech at a luncheon said, “there is some point, and I don’t know what point that is, that I would be interested in talking to the New York Stock Exchange about a temporary halt in trading” (Wall Street Journal 1987) Market conditions deteriorated as traders were afraid of being locked into positions. The record trading volume on Oct. 19 overwhelmed many systems as trade executions were reported more than an hour late. By the time the dust settled the Dow had closed at 1738, down 508 points. This was down 22.6% in one day, or 5233 points in today’s market. At 9 pm we left the Merrill office for 42nd
Street’s bar and wondered what the future held.
You know the rest of the story. It was not so clear then, however. Just as it will not be so clear the next time we have a big decline in a day or a month or when the next recession or bear market comes. I am reminded of something Louis Rukeyser, the respected financial media star of this period said on the opening comments of his popular show ‘Wall Street Week’ following the crash.
‘Okay, let’s start with what’s really important tonight. It’s just your money, not your life.
Everyone who really loved you a week ago still loves you tonight. And that’s a heck of a lot more important than numbers on a brokerage statement. The robins will sing, babies will gurgle and puppies will curl up in your lap and drift happily to sleep. Even when the stock market goes temporarily insane…”
Louis Rukeyser, Wall Street Week Oct 23rd 1987
Not only was Rukeyser proven correct, but the markets showed that, in the long term, they are representative of capitalism and the free enterprise system and not a trading mechanism.
By year end, the Dow was up 11% off the Black Monday close. By January of 1989, 15 months after the crash, the markets closed at pre-crash levels of 2248. May 14th of 1992, the Dow was up 50% from PRE-CRASH levels.
30 years later, the market is up tenfold.
As mentioned before, this story has a happy ending. But to repeat, it was not so clear then. As President of a Wealth Management firm, we do not make guarantees. Except in this case; where we guarantee the next time we have a big decline, a recession or a bear market it will not be clear where things are going. Allow history to serve as a reminder that markets are a representative of the companies in the market and of capitalism.