October 1987 Crash: What would you do?

[Ronstar]

I stayed the course and my 401k "grew" by $45 during 1987.

 

[dmpi]

Yup I had a Schwab online brokerage account in 87, I believe it had $15 trades at the time. Unfortunately online accounts and regular brokerage accounts were seperate and was not very quick to move funds.

Even worse I wasn't able to access my account on the Friday or on Black Monday.... Schwab apologized for the inconvience...

In 1987 Schwab had a tele-broker system that you could use an touch-tone phone to buy and sell. You needed to know the funny codes to do it. It was a lot like text messaging. Back then I always would talk to a real person to make my trades. It would cost $50/trade.
Even though the internet was created in 1969 there was nothing on it & I don't think it really talked the internet protocal we use today. In 1991 we had a system manager at work that was really on top of it. He got us hooked into the www web and installed mosaic for us to use. I still remember it. It was a vast wasteland with nothing there. Home pages to fortune 500 companies were missing or just place holders. Even our comapny (a fortune 500 company) just had a place holder.

 

[twaddle]

Even though the internet was created in 1969 there was nothing on it & I don't think it really talked the internet protocal we use today. In 1991 we had a system manager at work that was really on top of it. He got us hooked into the www web and installed mosaic for us to use. I still remember it. It was a vast wasteland with nothing there. Home pages to fortune 500 companies were missing or just place holders. Even our comapny (a fortune 500 company) just had a place holder.

It wasn't until the late '80s that commercial users were allowed on the net. It was all downhill from there. Usenet has been around since 1979, and the quality of discussions were generally pretty good back then. The web thingy just added flashy graphics and a lot more people.

I was working on Black Monday, and I don't recall making any trades till the next day. I remember looking at the prices in the paper, telling myself that the companies I was invested in still had solid business, and bought some more shares.

A short-term crash doesn't bug me. A prolonged bear like Japan had would bother me. I would seriously question conventional market wisdom if the market kept going down after 10 years or so.

 

[figner]

It's fun to hear about the technology I didn't get to use. (didn't have a brokerage acct till the 90's.) Thanks!

 

[Running_Man]

At the time I sold all my stocks on Monday morning at the open after being in discussions with my friends over the weekend over the big drop on theprevious Friday and how stocks were sure to rise on Monday. It was so universally accepted, yet stated with such fear in their conviction I felt they had to be wrong so I sold all my stocks at the open, which was not a lot. They all closed 20-25% below what I sold them for. I then tried to buy calls near the end of the day but was unable to buy them as the prices were unbelievable. I think at the time to get a double on a call 90 days out the stock market would have had to rise 25%. Later in November I bought back about 1/2 of my stock position at a significant discount to what I had sold at. Was certainly a very interesting time.

I would imagine if stocks were to fall like that most people on these boards would buy more stock if that were even possible and hope that it was a repeat of 1987 and not a repeat of 1929. I would continue to increase my stock holdings by 1 percent per month for the next 4 years.

The biggest difference between then and now is there was no real financial crisis, mostly just a lack of confidence in the US dollar which had been dropping and trade issues. Economic conditions are much worse right now than they were in 1987.

Of all the people I knew only one person bought stocks that day, most executives were in shock at their demise of their wealth. I imagine the loss in value in stock options would create the call by today's executives for a lot of board meetings to reprice option grants.

It is one thing to be 80% invested in stocks and say you'd buy, it takes a tough soul to see their personal portfolio drop from 2 million to 1.4 million over a course of a couple weeks and invest the cash reserve in additional stocks while at the same time their uncashed stock options went from 3 million in value to zero.

 

[redduck]

I remember that day. Almost everybody (who was in the market) in the office building had a glazed look and we all sort of mumbled something about, "Staying the course." I guess that pretty much is what I would do again. Get the glazed look, be somewhat paralyzed with anxiety and maybe, just maybe, buy a moderate amount of something that got hit really hard. But, I'm still working. It would really tough for me to invest any amount if I were retired--even if I thought it might be the sensible thing to do. Fear would over power greed in this case.

 

[haha]

It would really tough for me to invest any amount if I were retired--even if I thought it might be the sensible thing to do. Fear would over power greed in this case.

I am reading an excellent book by Richard Bookstaber, a quant and hedge fund operator. He was "risk control officer" at Salomon Brothers when they were the big boys in proprietary bond trading. He makes an interesting observation:Risk tolerance increases as market winnings pile up, and vice versa. So most people will not have a fixed risk tolerance. When they are winning over a considerable period of time, like today, they are more tolerant of risk. When losing, it goes into reverse. So these people can be expected to sell stocks as the market goes down, only because it is going down, and thus their risk tolerance is decreasing. This is why a mutual fund will have a greater return over a long period then the individuals who invest in it. Many of them will have a perverse tendency to bail out at low points, and up their investments after long advances.

From my POV, the real problem for a retiree is what Twaddle mentioned. One can never know when the market goes down forcefully whether this is 1929 US, 1987 US, or 1989 Japan. "Damn the torpedoes, full speed ahead" sounds cool but since it may be foolhardy, how many of us would do it? If we would, would other interested parties such as spouses and SOs allow it? In many ways, it is easier to devise trend following strategies that are psychologically sound than counter-trend strategies.

But I guess if this stuff were easy we would all be billionaires.

Ha

 

[rs0460a]

What would you do now if stocks dropped 10% in a week and then 23% on one day? Just wait? Rebalance the next day? Buy more? Sell all? Freak out? Go back to w*rk?

I'll do the same thing today (retired) as I did in '87 when I was still w*orking - nothing at all.

Back then, I was 90-100% equity funds. Today "only" 60% (with 3+ years cash for down market periods).

If you have played the game long enough, you know that in the end you will be OK. Any sudden moves will "kill you" (kind of like the rabbit in the middle of the highway).

Like that rabbit, I've always been "middle of the road" and have done well over the years.

- Ron

 

[W2R]

I was flipping channels last night and came across a show on CNBC about the October 1987 crash. It was FASCINATING!!! They showed network news coverage from the time, and interviewed financial people about it. On the day that the market dropped ~25%, some people were seriously worried that it would continue to drop further, maybe even to zero. In retrospect it is easy to poo-poo such fears, but in the middle of a crash fears abound. They almost shut down Wall Street.

It's easy for me to say that I would stay the course, and I was proud of myself that I did stay the course during the late summer of this year, without even a wavering thought. This year was nothing compared with 1987, though.

During the show, I took percentages of market drop each day (as they went along in the sequence of things) and found the equivalent drop for a market beginning at 14,000 so that I could get a sense of what it felt like. It must have been awful to experience. The show blamed the 1987 crash mainly on the impact of new technology (computers) on the market.

 

[FinanceDude]

I was flipping channels last night and came across a show on CNBC about the October 1987 crash. It was FASCINATING!!! They showed network news coverage from the time, and interviewed financial people about it. On the day that the market dropped ~25%, some people were seriously worried that it would continue to drop further, maybe even to zero. In retrospect it is easy to poo-poo such fears, but in the middle of a crash fears abound. They almost shut down Wall Street.

It's easy for me to say that I would stay the course, and I was proud of myself that I did stay the course during the late summer of this year, without even a wavering thought. This year was nothing compared with 1987, though.

During the show, I took percentages of market drop each day (as they went along in the sequence of things) and found the equivalent drop for a market beginning at 14,000 so that I could get a sense of what it felt like. It must have been awful to experience. The show blamed the 1987 crash mainly on the impact of new technology (computers) on the market.

In 1987, I was still in college, but I had $25,000 in the market, and the next day I had $20,000 in the market...........

 

[cute fuzzy bunny]

It's fun to hear about the technology I didn't get to use. (didn't have a brokerage acct till the 90's.) Thanks!

We had discussion forums and chat boards back in the 80's too. Some of it well back into the 70's.

Used to be, some guy would set up a computer with a software package like FIDO, get 2-4 telephone lines and modems, and everyone would dial into the site. If you got a busy signal, you'd have to wait for someone to get off before you could post. Some fido "forum" information could be synchronized with other fido boards in the middle of the night. Obviously these were mostly localized boards due to long distance charges, so get-togethers were a lot more common.

Some large commercialized services offered dozens or up to 100 modem connections, charged for downloads of software and...umm...images, and made a pretty good profit.

As far as the crash, I keep a hundredK or two sitting around for "holy crud!" dips.

Otherwise they're pretty meaningless to me. My expenses dont change in a crash, and because I dont have a pile of debt to service, my expenses are well covered by my interest and dividends. I might spend a little less until everything recovers and in the meanwhile push a little of the excess income into whatever is cheap.

Ha's observations on how even cheap stuff went down and how allegedly uncorrelated assets all sank at the same time...very worthy of long consideration. Emotional traders (which is most of them) arent very interested in the scores of backtests and slicing details when blood is in the water.

 

[FIREd]

I was too young when the 87 crash happened and I don't remember much about it. But CNBC's special last night really was eye opening and it was interesting to see what went on into people's head at the time... The talks about depression and the upcoming collapse of the US financial system, the alarmist newspaper headlines... It sure must have created a lot of panic... Hopefully in such situation I would have the courage to just turn off the TV, keep Quicken closed, and avoid all money-related discussion boards and sites on the internet so that I would not be tempted to sell in a panic. Then when the smoke clears, hopefully I will have the guts to start buying while the market is low. When the tech bubble burst in 2000 I did not panic and kept buying into the market but the decline was orderly. In a 1929 or 1987 type scenario with an abrupt collapse of the stock market, I really don't know how I would ultimately react...

 

[CuppaJoe]

.... online accounts and regular brokerage accounts were seperate and was not very quick to move funds.

Even worse I wasn't able to access my account on the Friday or on Black Monday.... Schwab apologized for the inconvience...

Yeah, I moved a lot of $$ out of my accounts over the summer '07. Most of them can be moved on-line, one I do by telephone and one by, believe it or not, snail mail. I found it very slow to do this because I had to factor in an emotional element. I went from the accumulation phase to capital preservation in the blink of an eye but moving the funds took me a month in six movements. I, too, ran into a day (in '07) when Schwab was unavailable--it was a day after I did some switching around and I just wanted to check my balance, etc.; had to wait for the next day to confirm.

 

[NinjaPigeon]

I was flipping channels last night and came across a show on CNBC about the October 1987 crash. It was FASCINATING!!! They showed network news coverage from the time, and interviewed financial people about it. On the day that the market dropped ~25%, some people were seriously worried that it would continue to drop further, maybe even to zero. In retrospect it is easy to poo-poo such fears, but in the middle of a crash fears abound. They almost shut down Wall Street.

It's easy for me to say that I would stay the course, and I was proud of myself that I did stay the course during the late summer of this year, without even a wavering thought. This year was nothing compared with 1987, though.

During the show, I took percentages of market drop each day (as they went along in the sequence of things) and found the equivalent drop for a market beginning at 14,000 so that I could get a sense of what it felt like. It must have been awful to experience. The show blamed the 1987 crash mainly on the impact of new technology (computers) on the market.

Is this what you watched? MSNBC - October '87: Crash and Comeback - Home Front Page

If so I suppose I'll have to try to catch it, as I'm pretty fascinated with how I'd handle it. Just for kicks, I did like you and calculated what the DJIA would be if it had a 22% drop. Scary stuff.

For those of you who say you would stay the course, how would your DWs or DHs feel? Would they defer to your judgment or would this put pressure on your relationship? I know my fiance was not that happy with the 8% dip earlier this year, and that was at least spread out over a couple weeks. But we stayed the course and all was well. I'd have had a bigger problem on my hands convincing her not to worry if the drop was more pronounced.

 

[twaddle]

For those of you who say you would stay the course, how would your DWs or DHs feel? Would they defer to your judgment or would this put pressure on your relationship? I know my fiance was not that happy with the 8% dip earlier this year, and that was at least spread out over a couple weeks. But we stayed the course and all was well. I'd have had a bigger problem on my hands convincing her not to worry if the drop was more pronounced.

How do they view the market? Does anybody view it as something that always goes up?

I like Bogle's view on market returns. He breaks it down into returns due to earnings growth, dividend yield, and speculative yield (P/E growth).

Generally, you get to keep the returns due to earnings growth and dividend yield, but the market tends to take back returns due to speculative growth (unless you sell to realize those returns).

 

[Gumby]

I would like to think that I would deploy some of my cash to scoop up the bargains, but I would probably do what I did in 1987 -- nothing. I didn't sell what I had and I didn't buy more.

 

[W2R]

Is this what you watched? MSNBC - October '87: Crash and Comeback - Home Front Page

If so I suppose I'll have to try to catch it, as I'm pretty fascinated with how I'd handle it. Just for kicks, I did like you and calculated what the DJIA would be if it had a 22% drop. Scary stuff.

For those of you who say you would stay the course, how would your DWs or DHs feel? Would they defer to your judgment or would this put pressure on your relationship? I know my fiance was not that happy with the 8% dip earlier this year, and that was at least spread out over a couple weeks. But we stayed the course and all was well. I'd have had a bigger problem on my hands convincing her not to worry if the drop was more pronounced.

Yes, that was the show. I thought it was riveting, though it might bore some of the more sophisticated analysts here. The emphasis was on the human aspects and what it was really like to live through the events surrounding Black Monday, 1987.

And as for me, I have no DH to affect my financial decisions. Frank (my S.O.) is a German engineer and very logical, as some are. He might give me input, but he would never try to pressure me on something like this. We keep our money separate.

 

[megacorp-firee]

As an energetic clog (not a mis-spelling ) in the gears of Megacorp, I was nose to the grindstone during this time. I had max contributions to my employee stock plan (10%) and by then, I think they had the 401K plan, so I probably had the max contribution to my 401k. I just left all those things ride. So in essence I dollar cost averaged more into my investments over the period. Not because I am a brilliant investor ... but because my eyes were glued on the grindstone (I was still enamored about career aspirations at that time). My thoughts were that the employee stock plan and 401k were part of my kids college and my (eventual) retirement funds. Worked out well until 2001 and I had another 'come to Jesus' moment. Luckily, I had seen this happen (big drops) a few times and once again did not panic (by design this time) and did not 'dump' and kept DCAing into the 401k throughout.

[-]Dumb luck [/-]Excellent Planning of this nature has gotten me to FIRE (3 1/2 months and counting).

 

[haha]

How do they view the market? Does anybody view it as something that always goes up?

I like Bogle's view on market returns. He breaks it down into returns due to earnings growth, dividend yield, and speculative yield (P/E growth).

Generally, you get to keep the returns due to earnings growth and dividend yield, but the market tends to take back returns due to speculative growth (unless you sell to realize those returns).

The market has been out-growing the economy for a long time now. I would say that many unsophisticated investors implicitly assume that is the way things are 'sposed to be. Many others realize that it can't last, but don't want to leave the bus until they are sure it is out of gas. Interesting times for sure.

The 70s were a time when the economy outgrew the market. To rebalance from the 60s, when for the most part the market outgrew the enconomy.


Ha

 

[redduck]

I was too young when the 87 crash happened and I don't remember much about it. Then when the smoke clears, hopefully I will have the guts to start buying while the market is low. When the tech bubble burst in 2000 I did not panic and kept buying into the market but the decline was orderly. In a 1929 or 1987 type scenario with an abrupt collapse of the stock market, I really don't know how I would ultimately react...

The problem is: you really can't tell if or when the smoke has really cleared. At least, I never have been able to do so.
Uh, is it still smokey now, or can someone give the "all clear signal?" If it's all clear, could you IM me as soon as possible (I'd like to get a jump on this before the word gets out).

 

[twaddle]

The market has been out-growing the economy for a long time now.

Yup, for more than two decades:

The 70s were a time when the economy outgrew the market. To rebalance from the 60s, when for the most part the market outgrew the enconomy.

I was an infant during the 60's tech bubble. And I think it had already imploded by the time I was in elementary school. Tell us about the go-go years, Uncle Ha.

 

[CuppaJoe]

...
I was an infant during the 60's tech bubble. And I think it had already imploded by the time I was in elementary school. Tell us about the go-go years, Uncle Ha.

I'm not Uncle Ha, but I was in equity funds during the go-go years. All I can do is remind myself of John Kenneth Gallbraith's comments on the brevity of financial memory. I vaguely remember the '70s were slow going, dividend-wise, and after some years in the market, I was very surprised to get my first capital gains distribution, wow, it was $4.+ per share. At that point I became much more interested in the market.

 

[sweetana3]

Lived thru 1987 and subsequent crashes and just sat it out and bought more. What hurt us more were the crazy speculators who led to the tech bust. We held out as long as we could and then bought some tech stocks just before the bust. Otherwise we have had only two slightly negative years since 1986 and one year was +30%. Overall we are pretty happy.

Now to satisfy me, we have a huge CD ladder so that if we lost alot in the market, we hopefully would have some aside. Debt is gone too.