30th Anniversary of October 19, 1987 stock market crash

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nordsteve
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30th Anniversary of October 19, 1987 stock market crash

Post by nordsteve » Mon Oct 16, 2017 9:44 am

Those of us who have been investing for a while can't forget the memorable day of October 19, 1987. It's memorable because the S&P 500 lost over 20% of its value that day. Newer investors should think about how you'd feel if your equity allocation declined that much in a day.

Two good articles looking back at this milestone decline in the market:

The Crash of ’87, From the Wall Street Players Who Lived It

Marking 30 Years since the Stock Market Crash of 1987

TLC
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Re: 30th Anniversary of October 19, 1987 stock market crash

Post by TLC » Mon Oct 16, 2017 10:03 am

Oh yeah, I remember that day. I was attending a Market Technicians Association conference at the American Stock Exchange. I will always remember the fear on the faces of the speakers.

nordsteve
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Re: 30th Anniversary of October 19, 1987 stock market crash

Post by nordsteve » Mon Oct 16, 2017 10:08 am

From the articles:
...a terrified woman came up to my friend and me. “Do you know what’s happening?” she asked. When I looked at her, I saw panic—and that’s when it hit me that something was going on.
I was so scared that I got $10,000 out of the bank, took it home, and stored it in the rafters.
Howard Baker [President Ronald Reagan’s chief of staff] called and said he’d just seen the president. And this is a direct quote, he said, “I’ve just been to see the president, and the president understands that you have to do what you have to do to protect your people. However, the president of the United States would very much prefer if the New York Stock Exchange could see its way clear to remain open.”

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Re: 30th Anniversary of October 19, 1987 stock market crash

Post by Slothmeister » Mon Oct 16, 2017 10:18 am

nordsteve wrote:
Mon Oct 16, 2017 9:44 am
Those of us who have been investing for a while can't forget the memorable day of October 19, 1987. It's memorable because the S&P 500 lost over 20% of its value that day. Newer investors should think about how you'd feel if your equity allocation declined that much in a day.

Two good articles looking back at this milestone decline in the market:

The Crash of ’87, From the Wall Street Players Who Lived It

Marking 30 Years since the Stock Market Crash of 1987
Happy Anniversary!!!

Yep, newer investors like me think about this stuff all the time. Bogleheads say, stop trying to time the market! This crash really just ended up being a blip in the grand scheme of things, right?


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Taylor Larimore
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Re: 30th Anniversary of October 19, 1987 stock market crash

Post by Taylor Larimore » Mon Oct 16, 2017 10:34 am

Bogleheads:

My wife and I were on a cruise in the South China Seas on October 19, 1987. Word came over the wireless that the stock market had plunged 22%. The ship had only 2 telephones to the U.S. and both telephones had long lines of scared passengers waiting to call their brokers to sell.

I remember trying to make a decision. I hate waiting in line so (thankfully) we did not sell.

Lesson learned: Stay-the-course.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: 30th Anniversary of October 19, 1987 stock market crash

Post by david1082b » Mon Oct 16, 2017 11:55 am

nordsteve wrote:
Mon Oct 16, 2017 10:28 am
Chart of S&P 500 from 1927 to today
this chart doesn't include dividends, and it repeats the common habit of adjusting for inflation at the same time as ignoring dividends (would you ignore interest you received on your cash while calculating how much money you have after inflation?). this makes it look like there was zero return from September 1929 to the summer of 1985, when in fact the return was 1228% or 4.7% a year after inflation including dividends. https://dqydj.com/sp-500-return-calculator/

I know dividend pedantry is a bloodsport on these forums but I can't help being astonished at how many price charts get thrown around with inflation taken away. I blame S&P and other index makers for even publishing price-only charts. They are pretty much useless in the long run. Price movements get all the attention though, which is why the '87 crash was so burned into people's memories I guess. Dividends are much less memorable.

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Re: 30th Anniversary of October 19, 1987 stock market crash

Post by WhyNotUs » Mon Oct 16, 2017 12:01 pm

That was a reallllllly bad day. Learned the difference between gambling and investing the hard way.
I own the next hot stock- VTSAX

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oldzey
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Re: 30th Anniversary of October 19, 1987 stock market crash

Post by oldzey » Mon Oct 16, 2017 6:55 pm

October 20th must have been a great day to TLH. :twisted:
"The broker said the stock was 'poised to move.' Silly me, I thought he meant up." ― Randy Thurman

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Re: 30th Anniversary of October 19, 1987 stock market crash

Post by Portfolio7 » Mon Oct 16, 2017 7:06 pm

I remember wishing fervently I had money to invest after the crash. I was in college, every dime went to tuition, rent and food, and this looked like easy pickings... (it's easier to think that way when you've nothing at stake in the first place.)
An investment in knowledge pays the best interest.

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Re: 30th Anniversary of October 19, 1987 stock market crash

Post by bengal22 » Mon Oct 16, 2017 7:15 pm

Even at the ripe age of 35, I knew that investing was a long term game. I had a good job, good family and I just knew that this "collapse" would have no long term impact. So I maintained my course of investing every paycheck and I continued to have faith that the U.S. Economy is resilient. Now if I would have lost my job as many did I would have been shaken to the core.

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Re: 30th Anniversary of October 19, 1987 stock market crash

Post by Fallible » Mon Oct 16, 2017 8:17 pm

Enjoye the articles and thanks for posting.

In the early '80s, I was too skittish about the stock market to invest in it, so I invested in the high-interest CDs. I continued learning about mutual funds and finally got into the market in (drum roll...) 1987. Several months later, the crash. My two reactions that I remember: Wondering how often this happened (very naive). And then realizing I had time on my side and was in it for the long term.
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Re: 30th Anniversary of October 19, 1987 stock market crash

Post by technovelist » Mon Oct 16, 2017 8:33 pm

I had just started a new job in the financial sector that very day, if I recall correctly.

However, I didn't have anything in the stock market, so it didn't affect my portfolio.
In theory, theory and practice are identical. In practice, they often differ.

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Re: 30th Anniversary of October 19, 1987 stock market crash

Post by blaugranamd » Mon Oct 16, 2017 10:00 pm

And if you invested $10k the day before that crash, you'd have $144k today. The worst market timing in history and you still make plenty of money by the time you retire. Stay the course, time in the market.
-- Don't mistake more funds for more diversity: Total Int'l + Total Market = 7k to 10k stocks -- | -- Market return does NOT = average nor 50th percentile, rather 80-90th percentile long term ---

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Re: 30th Anniversary of October 19, 1987 stock market crash

Post by donfairplay » Mon Oct 16, 2017 11:09 pm

The S&P500 in 1987...

Jan 2 1987: opened at 242.17
Dec 31 1987: closed at 247.08

The crash of 1987 was just a blip in the year, let alone the go go 80's stock market climb (I could argue the bond market climb had a bountiful decade, so did mortgage bonds that were introduced by Salomon Brothers)

something something true bogleheads only their checked statement annually - there was a crash in '87? - long term stay the course yadda yadda
Last edited by donfairplay on Mon Oct 16, 2017 11:11 pm, edited 1 time in total.

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whodidntante
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Re: 30th Anniversary of October 19, 1987 stock market crash

Post by whodidntante » Mon Oct 16, 2017 11:11 pm

I've lived through some terrible markets, but I'll let you old folks tell me about being invested in 1987. :wink:

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k66
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Re: 30th Anniversary of October 19, 1987 stock market crash

Post by k66 » Mon Oct 16, 2017 11:19 pm

I recall it well not because it really made any direct impression on me, but I do recall my undergrad Engineering Economics prof getting really wound up about it... I look back on it now and see it as the major event that it was.

If I can learn anything from this, it is that you can be completely oblivious to a monumental market catastrophe and still survive (handily). Assuming that I can remain so adroitly clueless on the next go around, I will surely be a happy man!
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Re: 30th Anniversary of October 19, 1987 stock market crash

Post by MnD » Tue Oct 17, 2017 12:06 am

We started systematically investing in July 1986 (both age 24) so didn't have big bucks in the market by Oct 1987.
By careful reading of Money Magazine and getting advice from my dad "to invest 50/50 cash and the market" we were mailing checks in monthly in a 50:50 ratio to Vanguard Money Market Prime (6% yield!) and to an aggressive "top rated" balanced fund (Strong Total Return).

The crash of 87 was enough to unbalance our carefully crafted 50:50 ratio. :shock:
So not knowing anything formally about rebalancing but sensing our 50/50 world was out of order, we mailed in 100% of our November and December 1987 contribution to only Strong Total Return. Monthly statements were mailed back from both funds and lo and behold - by January 1988 , 50/50 balance was restored! Good times...... :beer

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Re: 30th Anniversary of October 19, 1987 stock market crash

Post by DartThrower » Tue Oct 17, 2017 7:27 am

In October 1987 I was lucky enough to be transitioning from my first ever real job to my second. I had this thing called a "401k" or something like that. During the period while it was being rolled over into an IRA the crash happened. All the money was in a money market account while transitioning. My savings was also all in CDs or cash in those days. Sometimes it's better to be lucky than good!

I try to stay mindful of that fact that history never repeats exactly. The market could crash this Thursday and take 10 years to recover. We should each have a strategy in place to cover any scenario. There is no such thing as a bubble in common sense.
A Boglehead can stay the course longer than the market can stay irrational. It's impossible to have a bubble in common sense.

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Re: 30th Anniversary of October 19, 1987 stock market crash

Post by MichaelM » Tue Oct 17, 2017 7:59 am

I remember telling my office co-worker I had lost something like $500 in the market on that RBD in Oct and they were so worried for me and that I should not be in the stock market. I was just making enough money to invest a few $50 bills. I seem to remember how quickly the market came back too. A time that really got my attention was the market around 2000 I believe. There was a bear market that was protracted and deep. It took a lot of courage to buy into that bear every two weeks and the markets just kept pulling back for months on end. My motto was keep yourself employed, pay yourself first, LBYM and never sell!

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Re: 30th Anniversary of October 19, 1987 stock market crash

Post by MichaelM » Tue Oct 17, 2017 9:19 am

Whodidntante, your avatar pic always reminds me of the card games I was involved in growing up in Arkansas. Vietnam was rageing on, we had graduated high school and had construction jobs and money for the first time and we had generally friendly poker games on the weekends. Some of the personalities that were in those games! I saw guys lose a weeks wages but everybody took it like a grown up and sucked it up and moved on. Good times, bad times. My Brother and his friends flunked out of college, got drafted and went to Vietnam and back. There were lots of guys on their way to Vietnam in our card games and they generally were just enjoying their time before buckling up for 12 months of slogging.

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Reb Tevye
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Re: 30th Anniversary of October 19, 1987 stock market crash

Post by Reb Tevye » Tue Oct 17, 2017 11:04 am

In Oct 1987, I had a couple years of retirement savings. I didn't know anything about anything.

The crash happened.

I walked into the bank and withdrew my entire IRA.

Due to that event and returning to school, etc I didn't save/invest another dollar in anything but CD's until 1991.
"So, what would have been so terrible if I had a small fortune?"

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sergeant
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Re: 30th Anniversary of October 19, 1987 stock market crash

Post by sergeant » Tue Oct 17, 2017 4:29 pm

I was on my day off and received a phone call from my watch commander. He ordered me to come to work. When I arrived there were several of us young guys in the locker room wondering why we had been called in. At briefing we were given our assignments. People had been showing up at their broker's office with guns demanding their money. We dispersed to the various brokers and I remember spending the next two days parked in front of an E.F. Hutton office which had a line that went around the building. Only one person was allowed in at a time and they were subject to being searched. There were no serious issues but the crowd was worried.

Back at the station all the soon to be retired guys were in a panic. Us young guys enjoyed the easy OT.
Lincoln 3 EOW!

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Re: 30th Anniversary of October 19, 1987 stock market crash

Post by oldcomputerguy » Tue Oct 17, 2017 4:34 pm

I had been in our 401k a couple of years at the time, but I did not make the mental connection, so I sailed right on through with no qualms.

For that matter, I still had that same mental disconnect twenty years later during the subprime mortgage crisis.

I guess there's a lesson there -- don't pay a lot of attention during downturns. :twisted: Or, as our friend Taylor Larimore has already noted, "stay the course".
Anybody know why there's a 20-pound frozen turkey up in the light grid?

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Re: 30th Anniversary of October 19, 1987 stock market crash

Post by FrugalInvestor » Tue Oct 17, 2017 4:35 pm

I got very nervous about talk of overvaluation prior to the crash and sold all my holdings (which weren't too substantial at that time). Of course, it took me much too long to get back into the market. That was one of the earliest Boglehead learning moments in my investing life.
IGNORE the noise! | Our life is frittered away by detail... simplify, simplify. - Henry David Thoreau

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Re: 30th Anniversary of October 19, 1987 stock market crash

Post by Barefoot » Tue Oct 17, 2017 6:48 pm

We had been selling stocks for a while anticipating buying a house in '88. (sort of reverse dollar cost averaging) I called the broker that morning to sell the last chunk of stock we wanted to sell to raise down payment money. He tried to talk me out of "panicking", but I reminded him of our needs, and he placed the order.

In Feb of '88 we closed on the house and all was well.

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Re: 30th Anniversary of October 19, 1987 stock market crash

Post by nedsaid » Tue Oct 17, 2017 6:59 pm

Taylor Larimore wrote:
Mon Oct 16, 2017 10:34 am
Bogleheads:

My wife and I were on a cruise in the South China Seas on October 19, 1987. Word came over the wireless that the stock market had plunged 22%. The ship had only 2 telephones to the U.S. and both telephones had long lines of scared passengers waiting to call their brokers to sell.

I remember trying to make a decision. I hate waiting in line so (thankfully) we did not sell.

Lesson learned: Stay-the-course.

Best wishes.
Taylor
Taylor, I was 28 years old when this event happened. I lost a few hundred dollars that day and was pretty shaken emotionally. A faithful viewer of Wall $treet Week, I tuned in to watch normally calm and collected Louis Rukeyser, but alas he looked shaken despite his best efforts to project confidence. My losses may as well have been in the billions of dollars. It seems silly today but the emotions were real. When the calendar year turned to 1988, the US Stock Market was actually up for the year.

A second part of the story was that my Grandmother quizzed me and after listening to my tale of woe, her reaction was, "It sounds to me like it is still worth more than what you paid for it." And of course, like Grandmothers everywhere, she was right.

It turns out that one of the things that exacerbated the crash was programmed trading and so called portfolio insurance. The answer to excess portfolio volatility actually made the problem worse. Sometimes the really smart guys (and gals) outsmart themselves. The market does things that are not anticipated by even the experts.
A fool and his money are good for business.

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Re: 30th Anniversary of October 19, 1987 stock market crash

Post by Levett » Tue Oct 17, 2017 6:59 pm

"but I'll let you old folks tell me about being invested in 1987."

Heckuva day, says this 75 year-old.

Was at a meeting in Ann Arbor, MI, and my partner and I were returning home along Main Street from a meeting when he looked up at the Schwab ticker and muttered, "That can't be true."

What could I say other than "It must be?"

It's was quite a ride home. :(

Lev

rgs92
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Re: 30th Anniversary of October 19, 1987 stock market crash

Post by rgs92 » Tue Oct 17, 2017 8:58 pm

I remember that the crash was blamed mainly on "Programmed Trading."
What is the current significance of that now?
(And was it true in retrospect?)

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Re: 30th Anniversary of October 19, 1987 stock market crash

Post by technovelist » Tue Oct 17, 2017 10:11 pm

rgs92 wrote:
Tue Oct 17, 2017 8:58 pm
I remember that the crash was blamed mainly on "Programmed Trading."
What is the current significance of that now?
(And was it true in retrospect?)
My understanding of it is that there were quite a few large institutions who all thought that they could hold more stocks than they really wanted to because of "portfolio insurance", meaning that they could just sell if the stocks went down.

That didn't work out too well because there was no one to sell to during the crash.
In theory, theory and practice are identical. In practice, they often differ.

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Re: 30th Anniversary of October 19, 1987 stock market crash

Post by PortAlice » Wed Oct 18, 2017 6:31 am

On October 19, 1987 I had absolutely no money invested in the market, but as a freelance illustrator whose work had appeared regularly in the New York Times, Washington Post, Wall St. Journal and Barron's, I was eagerly awaiting the publication of my first national magazine cover, for Business Week. Of course the story I illustrated, to accompany a story about Reuters, was cancelled, as the crash became the one and only story that week. They ran a mostly black cover that week.

I remember feeling really disappointed ... and taking a long walk down Ocean Avenue in Brooklyn to shake off the disappointment. I did get paid the full fee for the cover work, but I only was able to show the unpublished cover art in my portfolio in the following years. That's my remembrance of that day.

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Re: 30th Anniversary of October 19, 1987 stock market crash

Post by ERMD » Wed Oct 18, 2017 7:46 am

I don't remember anything about that day (I was quite young), but I remember my mother telling me a story about how my grandfather felt the market was accelerating at an unreasonable pace throughout that summer, and advised my family to move all of our assets into conservative things shortly before the dip. We avoided the "crash", although it also means we weren't completely on board for the bounceback.
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Re: 30th Anniversary of October 19, 1987 stock market crash

Post by jhfenton » Wed Oct 18, 2017 7:58 am

On the evening of Saturday, October 17, 1987, driving home from homecoming, I fell asleep at the wheel and crashed my car into a telephone pole. I broke my jaw and my left collarbone and partially collapsed my left lung. A local judge happened to be driving behind me and rescued me from the smoking car.

On Monday, the market crashed as well.

I sincerely apologize for any losses you all may have sustained. :(

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CyclingDuo
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Re: 30th Anniversary of October 19, 1987 stock market crash

Post by CyclingDuo » Thu Oct 19, 2017 7:14 pm

nordsteve wrote:
Mon Oct 16, 2017 9:44 am
Those of us who have been investing for a while can't forget the memorable day of October 19, 1987. It's memorable because the S&P 500 lost over 20% of its value that day. Newer investors should think about how you'd feel if your equity allocation declined that much in a day.

Two good articles looking back at this milestone decline in the market:

The Crash of ’87, From the Wall Street Players Who Lived It

Marking 30 Years since the Stock Market Crash of 1987
We lived and worked in NYC at the time. We remember it well.

It's nice to look back 30 years. We were age 26 and 29 respectively.

What's more important for us is to look ahead 30 years. On October 19, 2047 we will be ages 86 and 89 respectively. Here's to the market growing over the next 30 years like it did the past 30 years.

:sharebeer

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Re: 30th Anniversary of October 19, 1987 stock market crash

Post by heyyou » Thu Oct 19, 2017 9:03 pm

My 401k had weekly contributions but quarterly purchases, and paper quarterly account reports that came in the mail. I didn't even know about the crash. I always arrived home long after the six o'clock news, and did not stay up for the ten o'clock version. Ignorance is bliss, sometimes.

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Re: 30th Anniversary of October 19, 1987 stock market crash

Post by letsgobobby » Thu Oct 19, 2017 9:14 pm

I was a thirteen year old ninth grader when my mom picked me up from football practice. The radio news reports were definitely attention-grabbing. I've been interested in personal finance and investing ever since.

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Re: 30th Anniversary of October 19, 1987 stock market crash

Post by CyclingDuo » Fri Oct 20, 2017 7:03 am

Prudent to include the history of bull and bear markets (at least for the S&P 500) so you see how often corrections, bear markets, and the typical percentage drops for each equate to as well as occur:

https://www.yardeni.com/pub/sp500corrbear.pdf

From peak to trough of the 1987 "crash" (Yardeni Research labels the 1987 peak to trough drop as a bear market), the drop was -33.5% which then took a full 2 years to recover.

Once that recovered, of course, there was an initial drop of -10.2% in 1990 that also recovered that year only to be followed by another -19.9% drop in 1990.

Although the 1987 drop was condensed into a shorter time frame (which made it feel psychologically more painful), compare it to what we went through in 2000-2002 and 2007-2009 (-49.1% & -56.8% respectively).

We all know there will be plenty of corrections and bear markets in the future. Fear happens to be a powerful emotion that is not easily overcome. Aesop's Fable regarding the tortoise and the hare may apply here as well.

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