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Black Monday, October 19th, 1987

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I'm not sure which Monday will be regarded as the official twenty-year anniversary of the '87 crash, but whether it's next week or the week after, it's worth stepping back for a moment to remember what that day was like.

I guess many members on this board have no real recollection of that event. Either they're too young to remember, or they weren't at that time very much interested in the day-to-day ups and downs in equity markets, even when it was splashed on the front page of every newspaper (back then far fewer members of the general public owned shares directly). Also the fairly swift recovery meant that this drama only appears as a blip on any long-term stock chart. However, for those involved in the market either as professionals or investors, it's very hard to articulate just how devastating that day was, and how ingrained it is into one's psyche.

These days a drop of 200 points on the FTSE or 300 points on the DJIA is considered worthy of a new thread on HPC, and there's often talk of the infamous Plunge Protection Team stepping in to pull the market back to avoid any investor panic. Imagine then what it was like on Black Monday, October 19th, 1987, and imagine the frenzy it would lead to on this site if such a fall ever happened again (there was no Web then of course, so the pain couldn't easily be shared). Taking into account the 9.5% drop in the DJIA that had already occurred on Friday, October 16, in today's terms you would be sitting here posting about a fall in the Dow of over 4,200 points, from nearly 14,100 to below 9,900.

Another thing to bear in mind is that we're able to look back with hindsight and see that the world didn't come to an end. But when the market closed on that fateful Monday that's exactly what it did look like. I think my own reaction can best be described as one of incredulity and numbness - that such a scenario could transpire had never, EVER, been on my radar.

Is there any point to this post? Not really, other than to remark that for me this was a lesson in the awesome power of markets and values to go to places that no one could ever have imagined in a very short space of time. I'm not expecting that to happen to the UK housing market - more a long, initially abrupt but then slow decline relative to incomes that will last perhaps a generation - but I think it's fair to say that every twenty or thirty years or so an economic event occurs that serves as a reminder to all of us what the word 'risk' means in financial terms.

Judging by the rampant speculation that we've experienced in the last decade, we're long overdue a new lesson.

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I was too young to appreciate the 1987 SM slump at the time (I remember the hurricane though ;) ) but according to the chart above it was a sharp drop to be sure, but it recovered its losses within two years. And after that, all the way through the house price crash the FTSE soldiered on. Unlike the SM carnage since 2001 that still hasn't quite recovered.

What'll happen next? We live in interesting times, that's for sure.

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