Friends
It was 25 years ago today. The stock market crashed. I remember the details like it was yesterday. I was in my third year in the business, parked in the “bullpen” at the Merrill Lynch office in Clayton, Missouri ( a suburb of St. Louis). We had these little machines with a green screen on our desks called Quotrons. There were probably 30 of us in the bullpen at that time (the big producers had offices that lined the outside of the bullpen), and we spent most of the day in total shock just staring at our screens.
For a little perspective, October 19th 1987 was a Monday. Interestingly enough, the Friday before the Dow had fallen more than 100 points (a huge percentage at that time). I remember that Friday because I was one of the few brokers in the
office that day. Everyone was out of the office at a company outing ( I probably didn’t qualify because I didn’t sell enough to the “product of the week”- sorry Mother Merrill). I remember not having anyone to help me figure out what the heck was happening. It was the third Friday of the month, therefore option expiration Friday, and I had a very large client who had put options protecting his downside. We had to sell that protection that day because they expired and the cost to add new protection skyrocketed. The client and I decided that we would just have to wait until Monday to put back on our protection. Oops.
That the market was weak was not surprising. We had topped out in August of that year at over 2700 on the Dow and had been falling since. But with the wonderful new item called portfolio insurance, computers were programed to sell if various levels were violated. And sell they did. By the end of the day the Dow Jones Industrial Average had fallen 508 points or 22.6%. When you have the opportunity to come by our office someday, ask me to show you the yellowed copy of the Wall Street Journal in my desk. I have had it with me since that day. They day taught me never to think something can’t happen, but also remember that America and the markets bounced back. It left scars, but those scars are a good reminder. It taught me not to get caught up in manias to the upside, but also don’t lose faith when everyone is panicking.
The next day the market took hours to open as sellers continued to flood the system. But something happened late that morning, and a small index turned around and they started to buy. The crash was over. There was a lot of volatility for the next couple of weeks, but the worst was over. Nerves were frayed and lessons were learned.
We have been through many market cycles since, including the tech driven bull market of the late nineties, the viscous bear market of the early 2000’s and the most recent financial crises in 2008 and 2009, but the 1987 crash will also serve as the most important moment in my life as an advisor and money manager. Remember, those who don’t remember the past are doomed to repeat it. I will never forget October 19th 1987.
Jim
