October 1987 Crash: What would you do?

[ZMAN]

This morning's WSJ has some articles about the past October crashes including 1987. That black day will be 20 years ago on Friday. I remember it killing my then meager IRA.

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?

In all of your planning, are you ready for that?

Anyone on the board already in ER on that day?

 

[tightasadrum]

I'd like to think that I'd buy. But emotion and fear are powerful elements of human behavior. I have a big cash position for this sole purpose.

 

[teejayevans]

This morning's WSJ has some articles about the past October crashes including 1987. That black day will be 20 years ago on Friday. I remember it killing my then meager IRA.

I sold all my stock 2 days before to buy a new corvette, who says
living for today doesn't make financial sense. I remember laughing,
thinking this is great! I would have a different attitude now, but I
have enough non-equities to ride out a 1987 crash. It only took
3 years to recover.
TJ

 

[W2R]

This morning's WSJ has some articles about the past October crashes including 1987. That black day will be 20 years ago on Friday. I remember it killing my then meager IRA.

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?

In all of your planning, are you ready for that?

Anyone on the board already in ER on that day?

My net worth was negative in 1987, so it didn't affect me (except in that I was seeking employment at the time).

I hope I would not sell and I imagine that I would be able to stay the course. I know that I would obsess about it, though! I would probably buy more, but not until I was sure things were on their way up, again.

My plans for ER include enough slack that I would not have to use any equity investments to live on for at least ten years. By that time, hopefully my portfolio would have recovered.

 

[Moemg]

I'd just ride it out. Most of us are losing 25% equity in our houses now so what's the difference ?

 

[brewer12345]

I would be buying both equity and call options/LEAPS.

 

[W2R]

I'd just ride it out. Most of us are losing 25% equity in our houses now so what's the difference ?

Wow! I guess we have more of a drop in equity to come here in Louisiana. My analysis in my neighborhood (only) leads me to believe that I might have lost about 10% equity in my house, with a range of 5-13% down in comparable homes. And then, if I buy at a correspondingly low price soon after selling in a location that is in about the same place in the real estate cycle, probably I wouldn't lose much at all.

 

[LOL!]

In 1987, we just sat tight. We had no money to buy on the dip, but we also did not sell anything that October. When folks tried to use their online brokers to make transactions, they could not because the systems were overwhelmed. I recall a colleague of mine who entered an order to buy options that was never filled. He would've have been a multimillionaire if the order had gone through. Nowadays, the exchanges would shutdown due to the trading halts and brakes now in place. Things might go down 25% or more, but probably over a few trading days.

In the end, we did some tax loss harvesting later in 1987 (sell and buy something slightly different) and continued on.

 

[unclemick]

1987 - after the crash - greed consumed consumed my thinking - couldn't shake it - soooo - I changed my 401k from a 50/50 Ben Graham style 500index/fixed income to 100% 500index and held max contributions until I was layed off jan 93.

Depending on where you are at accumulation/distribution wise has a lot to do with it - my plan in 1987 was to early retire at age 63 in 2006 - NOT age 49 in 93 as it worked out.

Successful investing involves a good dollop of faith:

'God Looks After Drunkards, Fools and The United States of America.'

DCA, RTM, Index and the Norwegian widow says be sure and check the mailbox for those dividend checks once in a while - although now a days auto deposit also works.

heh heh heh

 

[bssc]

I sold most of my stock in March and was in cash. I bought back into the market on Tuesday, having been in transit Monday. I still don't believe in market timing since at that time I only had 20K in four or five positions. Could not do that now.

 

[eridanus]

In 1987, we just sat tight. We had no money to buy on the dip, but we also did not sell anything that October. When folks tried to use their online brokers to make transactions, they could not because the systems were overwhelmed.

Online brokers in 1987?

 

[Dudester]

This morning's WSJ has some articles about the past October crashes including 1987. That black day will be 20 years ago on Friday. I remember it killing my then meager IRA.

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?

In all of your planning, are you ready for that?

Anyone on the board already in ER on that day?

I remember that day, and I had a modest 401(k) and IRA at the time. I was a naive investor and didn't have a clue what to do, so I ended up doing nothing (I was in mental gridlock).

It's turns out - at least for me - doing nothing was the correct decision. My net worth recovered after about 6 months.

I suspect that the simplest thing you can do is make sure your bond/equity ratio is reasonable for your age. The latter is what saved me during the dot com crash - that and not being heavily into tech stocks.

 

[haha]

Chaos

was everywhere. I couldn't reach either of my brokerage accounts on the phone, so I drove 60 miles to the city and pushed some buy orders across the desk. I had plenty of stocks going down; but also lots of cash to deploy. I was more conservative than I might have been, but in a situation like this doing anything positive is a feat.

One thing that stuck with me, in addition to the trading beakdown, was how "undervalued stocks" and "uncorrelated assets" proved not to be, at least in the short term. Other than treasuries, if it could be sold quickly it was being sold. People weren't selling stocks; they were buying liquidity. And there wasn't much of it for sale.

It was really incredible.

Ha

 

[CuppaJoe]

I rode out every previous drop since 1972. I sold my 67% equity position down to 4% over the summer. I am now too close to retirement to risk what looks to me like a sure decline a comin' soon. If we have a bear market, I will buy equities and if the market roars along (and I hope it does), I will enjoy seeing my 4% position thrive.

 

[Kronk]

The question wasn't "what DID you do", it was "what WOULD you do".

My bond portion is 20% of my portfolio. I'd move a chunk of that into stocks.

 

[NinjaPigeon]

One thing that stuck with me, in addition to the trading beakdown, was how "undervalued stocks" and "uncorrelated assets" proved not to be, at least in the short term.

It's Monday, so for the life of me I can't make heads or tails of what you meant here. Are you saying the stocks you thought were undervalued ended up going down even more? And the assets you thought were uncorrelated ended up being correlated?

Do you feel, in hindsight, that executing the buy orders was a wise decision?

People weren't selling stocks; they were buying liquidity. And there wasn't much of it for sale.

I really like the way you worded this. I never thought of it like that before, but that appears to be exactly what they did.

I'm not sure how I'd handle such a drop. The worst I've experienced so far was a couple months ago, and I lost about 8% over the course of a couple weeks. I stayed put, and probably would have even bought more, but I've been in a cash strain lately. I've since bounced back most of the way to where I was in my after tax account, and my retirement accounts have surpassed their previous heights.

I think my next step is changing my asset allocation so I can better weather this type of storm. Right now I'm sitting on 100% equities in my investment accounts, and the volatility sometimes makes me nervous. The justification I've had for staying so much in equities is because 10% of my net worth is in cash and I am planning on slowly introducing bonds as I continue to accumulate.

 

[haha]

The question wasn't "what DID you do", it was "what WOULD you do".

No better guide to what you would do, than what you did do. The rest is just B.S.

It's Monday, so for the life of me I can't make heads or tails of what you meant here. Are you saying the stocks you thought were undervalued ended up going down even more? And the assets you thought were uncorrelated ended up being correlated?

Yes, that is what I was trying to say.

Do you feel, in hindsight, that executing the buy orders was a wise decision?

Yes. as it turned out. I suppose it might have turned out differently though. I think they were moderate bargains, not screamers.

Ha

 

[grumpy]

Every now and then I plug a 20% cut in all stock and mutual fund prices into the investment spreadsheet I have been maintaining for 10 years. That way I am prepared for the drop in my total portfolio I would see if an Oct. '87 type drop occurs. I didn't do anything different in terms of asset allocation then, and hopefully I wouldn't do anything different if (or when) it happens again.

Grumpy

 

[clifp]

The Friday before I tried to sell my Fidelity Magellan fund (it was still a high flyer back then). Unfortunately, I couldn't get through until the weekend so my order wasn't executed till after the Black Monday, so I sold Magellan at its low. I ended buying other Fidelity funds in the next month and did pretty well. Of course I would have done better to do absolutely nothing!

Having been through this before, I think I wouldn't panic and sell. I don't have a enough cash to be able to buy a lot, be fully invested.

 

[clifp]

Online brokers in 1987?

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...

 

[toofrugalformycat]

I "stayed the course" a la Bogle in 1987, but I was a lot younger then, still working and dollar cost averaging in, so it wasn't a real test. More of a test was March of 2000, when I quit (ERed) and the market began a long drop. I did not cash out, but rather bought some stock funds to keep my asset allocation somewhere close to my chosen allocation. So it's likely I wouldn't cash out of the market in another 1987 scenario, although whether or not I'd have the guts to buy a bunch of stock is questionable.

 

[figner]

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.

I'm curious what features constituted an "online" account in 87, since the first web browser (Mosaic) wasn't developed till 1992.

 

[twaddle]

I'm curious what features constituted an "online" account in 87, since the first web browser (Mosaic) wasn't developed till 1992.

The first online trading was available in 1983 (an early version of e*trade).

The earliest versions I recall entailed installing a software client on your PC and dialing up via modem.

Later, trading software was integrated into online services like Prodigy.

There were also terminal-based services. I think BofA's HomeBanking offered access to Schwab, probably around 1987.

 

[LOL!]

OK, maybe it wasn't an online account, but one of those automated telephone thingies. I've been using networks since around 1981 (can you say BITNET) and I'm getting old, so I don't remember things too well.

 

[twaddle]

I've been using networks since around 1981 (can you say BITNET)

Yeah, most people don't realize that the internet was created waaay back in 1969. A bit before this newfangled intraweb stuff came along.

BTW, interesting Usenet discussion from 1993:

Black Monday Revisited? Booming Bonds? The Tokyo Bull? - misc.invest | Google Groups

Seems very similar to the discussions we're still having today....