Happy Anniversary

JFK’s assassination in 1963 and Princess Diana’s unexpected death in 1997 are amongst those, “where were you moments,” that remain in the memory bank for life.

The 1987 stock market crash ranks high within investors’ memories, especially for the more mature investor, albeit that in my case I had whisked my wife off for a romantic weekend to celebrate our 10th wedding anniversary, ignoring the news channels and financial press, hence I was oblivious to the actual event.

Friday the 19th October marked the 25th anniversary of the 1987 market crash.

It was the worst one day stock market crash in history, when the venerable Dow Jones Industrial Average plunged by 23% on the 19th October 1987.

The Dow had advanced by a frothy 40% year to date by mid September 1987, in itself suggestive of a correction or at least a rest, but portfolio insurance (derivatives) played an important role in the precipitate sell orders that overwhelmed and helped crash the market, as did the intervention seen within the currency markets, as policymakers sought to control the decline in the $US. Furthermore, the US, “twin deficits,” was a major concern, with the fiscal situation having seriously deteriorated during the 1981/2 recession.

Although it looks like a blip on the above long term chart of the Dow, monthly data, a recent Bloomberg article cites the reasons as a slowing economy, the threat of higher taxes and concerns among individuals that trading was rigged for insiders. Much like today really.

“History repeats itself whilst Historians repeat each other”

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