Reflecting on market survival through the years

By DAVID MOON, Moon Capital Management, LLC
October 20, 2013

On October 20, 1987 – 26 years ago – I arrived at work especially early, thinking about the 508 point Dow Jones Industrial Average decline the day before. “Black Monday” and its single-day 22.6 percent DJIA decline occurred less than two years into my investment career.

Imagine the Dow dropping 3,400 points in a single day, after falling 900 points in the two previous days. From today’s level, that’s the equivalent of that Tuesday morning in 1987.

Exactly 49 days prior to The Crash, my new bride and I celebrated our having three college degrees and two jobs by engaging in an American rite of passage: we got a mortgage.

While I was fairly educated in economic history, I was also emotionally naïve. Unlike the real adults around us, we were never panicked or even worried about our financial fate. We had the luxury of being barely removed from college poverty.

I can’t find my records, but I’m guessing that my wife and I lost a grand total of $500 on our personal investments in the Crash of 1987.

The real adults around me were panicked. I spent most of October 19th with an older portfolio manager from Virginia who kept stopping at pay phones to check stock prices. He did not look well.

After the market closed that day, I huddled around a speaker phone with brokers from Merrill Lynch. I don’t remember anything the very official sounding voice proclaimed from the squawk box, but I was impressed with such “sophisticated,” instant access to information and analysis.

The men around me responded with depression.

One comment clearly caught my ear, but not my mind. “This is it, guys; we all need to find something else to do. The market is over.”

I didn’t know what “the market is over” meant, but the guy left the investment business that year.

In the 26 years since my naïve introduction to an instant bear market, the US military has fought seemingly constantly in the Persian Gulf. We suffered and survived 9/11 and the bursting of the technology stock bubble in 2000. The US experienced the worst US economy since the Great Depression and two significant bear markets.

The federal government has shut down five times, and our sovereign debt has been downgraded below that of Germany.

And we were burdened, according to many observers, with the worst president in modern times.

In hindsight, it’s easy to see how someone – especially a full-fledged, experienced adult – might panic in 1987. We were only five years removed from DJIA 1,000. It seemed we were on our way back there. And in the 16 years prior to 1982, the DJIA managed to increase a total of zero points.

A long period of investment malaise was fresh on the minds of the moneyed.

But our economy and financial market not only survived, they thrived, even in the face of almost constant dysfunction of one sort or another.

Since that miserable week in 1987, the DJIA, excluding dividends, has increased from about 1,700 to 15,000 – more than 750 percent.

I wonder what the next quarter century will bring.

David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN).

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