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The 30-year anniversary of the October 19th, 1987 stock market crash recently passed. I had started in the business in 1982, just as one of the great bull markets in history was getting underway, so I had not experienced a significant sell-off prior to that day. The 508 point (22.6%) drop for the Dow Jones Industrial Average was something no one had seen in their careers up to that point. The crash was blamed, in part, on program trading—in particular, portfolio insurance, a misnomer if ever there was one. Computer-driven programs were supposed to reduce losses through the use of futures or options, but when implemented in a falling market, they created a vicious cycle of selling. Black Monday, as the event came to be known, has been seared into the minds of nearly every investment professional who lived through it. The previous Friday had seen the market’s first-ever triple-digit point drop, as the Dow fell 108 points. Investors were therefore already preparing for a tough day over that weekend. When Monday came so did the selling, in waves which produced a total loss equivalent to more than 5,000 points in today’s market!
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