by Ken Nesler
As I look at some copies of the Wall Street Journal, New York Times and USA Today from October 20, 1987, all covering the previous day’s stock market drop of 508 points or 22.6% and became known as Black Monday. I kept the papers because I knew some day, I would want to read them again to remind myself of that dreadful, but challenging day. Look back, 30 years later, it seems to be a good day to do just that.
Some may recall the day as one of fear and confusion.
I remember it as one of the most interesting days of my career. Rather than panic and sell, I saw it as an opportunity to pick up stocks of solid companies at bargain prices. So, I bought. As a side note, because of the high volume, I didn’t know the actual price paid on some transactions until the next day.
How could I have been so nonchalant? The reason...I believe, was experience and cash. I wasn’t naïve. I had been trained and seasoned during the 1973-75 recession and market crash, not to mention the inflation and high interest rates of the 70s and 80s. I had also watched the market go up 22% the year earlier in 1986 followed by an additional rise of 43% through August. This good fortune at a time when the Federal Reserve was raising interest rates, which gave me an uneasy feeling. My reaction was to raise cash, which I did in late September and early October. By the time the crash came, our assets under management included a large cash position, some of which was reinvested on October 19.
Lucky to have had cash? Perhaps. Was raising so much cash, speculation or market timing? I don’t think so. You see, by 1987 I had already learned that bear markets and lower prices in general create opportunities. At the same time, bull markets and periods of higher prices should cause one to be cautious. In other words, when times are bad, look for positives and opportunities. When everything is going well, be cautious. This approach helped me in 1987 and has continued to be an underlying theme throughout my investment career, even today.
The markets milled about early on in the 3rd quarter and then climbed higher towards quarter’s end. Once again we touched new highs in the S&P 500, Dow Jones Industrial, and NASDAQ. In the 3rd quarter, nine of eleven economic sectors advanced. Energy, information technology, financials, materials, telecommunications and industrials ticked up significantly, while health care and utilities increased modestly. Consumer discretionary was flat, real estate declined mildly, and consumer stables were off significantly.
This quarter the Fed did not raise the Federal Funds Rate and reiterated its position to not increase interest rates aggressively. Bond values bobbed, weaved, and ended up more or less where they began. Bond yields extended their slow climb upwards. The yield curve, a graph of short term and long term interest rates, showed that there is not much difference between short term and long term interest rates at the moment.
9th Annual Client Appreciation Event
Please join us on Tuesday, November 14th at noon at Fleming’s near La Encantada for our 9th Annual Client Appreciation Event. We request that you RSVP by Thursday, November 9th by telephone, email, or message through the website.