A Day to Remember

US Wealth Napolitano |

October 19th will be the 26th year anniversary of one of the wildest and craziest days of my life. I'm referring of course to the crash of '87, otherwise known as "Black Monday". The numbers were staggering: the Dow Jones Industrial Average lost 508 points or 22% of its value in a span of just 6.5 hours. This was the largest one day drop in the history of the index.

Many are aware of my institutional equity trading background at Fidelity Investments. I began my trading career there in 1986, one year prior to the crash. I really didn't understand the difference between an "OTC stock" and a "listed stock” when I signed up, but I did know that I really enjoyed the high energy, fast pace environment of a trading desk. If you included the colorful traders, volatile fund managers, free buffet lunches, brokers falling all over themselves to take you to a Celtics game, and trading for the largest asset manager in the world, it really was a great place to get a start.

Back in 1986 the market never seemed to go down. This made a rookie trader's life pretty simple. When asked what the market would do on any given day, you didn't even need to rehearse the answer. A simple "up" would suffice. Along the same theme, I eventually figured out that it was a pretty good idea to place "buy" orders in the morning and "sell" orders in the afternoon. Brilliant!

In 1986 the industrial average was up 22%.  In 1987 from January through late August the Dow shot up 44%. Buying stocks was like shooting hippos in a birdbath. Folks that had never bought a stock in their life were pouring money into the market.

After August however, the market stopped giving and started taking. The downward momentum continued throughout September and accelerated in October.  Investors got nervous and began pulling money out of the market.  On Friday the 16th, the market dropped nearly 5% on heavy volume.  This was real and scary.  We were spiraling.  To meet the surge of redemptions, we were required to be present at the trading desk Sunday afternoon to begin entering orders into our computers in preparation for Monday.

Monday October 19th was simply a blur of activity.  To avoid spooking the public, we spread our orders out amongst numerous brokers.  At that particular time automation was sparse.  Human beings were responsible for providing execution instructions to other human beings.  To note that it was chaotic would be a considerable understatement.  Not all the trades were sales either.  Markets seldom head in one direction in a trading day, including days where the market is getting pummeled. Sellers took breaks from the action, then buyers stepped in hoping that they were seeing incredible bargains. Resume selling!!  Any price will do, just get me out!

At the end of that historic day, I left the trading room demoralized that the six year bull market had finally come to an end. Little did we know what a historic buying opportunity it would present and that the market would soon continue its upward trajectory.  The important lesson for me was to focus on my long-term objectives, and not to get overly concerned about short-term volatility.  So far it has served me well…

 

All performance referenced is historical and is no guarantee of future results.  All indices are unmanaged and may not be invested into directly.