19 Years-An Introduction & Black Monday
I am often accused of being an optimist. I guess if I'm to be tagged as anything I am more of a pragmatist in that I think that most of the time we muddle along and over time things work themselves out in the way they should. My world view on this comes from having seen and discounted much of what both the hope and glory and the doom and gloom crowd preaches. This view is not only related to the markets but to most of life itself. However here the subject is investing and over 90 % of the time it has been my experience when discussing stocks, things are never as good or as bad as the public and the media seem to think. That doesn’t mean the "public" is never wrong. They weren’t for example wrong after 9/11. But over time I have tried to apply this to what I believe to be a longer term pragmatic view of the markets. In this series I want to discuss why that is so by giving you my perspective of my almost 19 investing years. As you’re going to see there were as many bad times as good.
I am going to break this up into a series of articles covering the 19 years I have spent in "the business" & roughly matched to the times I spent at these firms: Kidder, Peabody & Co., William Blair & Co., Alex Brown (later Deutsche Bank Alex Brown) and from the time that I founded Lumen Capital Management. At the end, I’m going to sum up what lessons can be learned and may even have a surprise for you. Once this is done I want to begin writing about my view on the modern investment process, albiet with a detour or two.
I started with Kidder Peabody shortly after I graduated from law school in July of 1986. At the time the market as measured by the S& P 500 (hereafter SPX) after about a 4 year run was trading at 251.84. I spent almost a year training to be a stockbroker and was finally permitted to start trying to find clients in June of 1987. At the end of my 1st month as a broker the SPX stood at 318.66, a gain in less than a year of close to 27%. It was not hard to find people interested in the markets in those days. But then how could it have been. From it’s lows in 1982 the market was up in excess of 200%. The market had returned over 40% a year since it had broken out of a long consolidation period running from the late 1960s.
The markets dominated the cocktail circuit back then as much as they did in the late 90’s or real estate does today. As we entered the late summer of 1987 the market hit its high of 335.90 and then stalled out. It was down about 11% a couple of months later. On October 14th, the Secretary of the Treasury James Baker announced a record trade deficit and that perhaps the dollar should fall on foreign exchange markets. Like a pin pricking a balloon the money exodus began. The SPX lost almost 3% on 10/14, about 2.5% the next day and a nasty 5% to close out the week on the 16th. Investors had a weekend to stew over what had just taken place and their verdict on “Black Monday” was to sell. The SPX lost almost 58 points in one day- almost a 21% decline. There has NEVER been a similar daily loss in my investment experience. Even after 9/11 the market lost less!
Since its August highs the SPX had lost over 30%. To put this in perspective a similar decline after 2000 took about a year and half to go down the same amount. Here stocks gave back over a years worth of gains in about eight weeks, trading at the same levels it had also seen in April 1986. As bad as this was, more difficult days were to follow……to be continued.
I am going to break this up into a series of articles covering the 19 years I have spent in "the business" & roughly matched to the times I spent at these firms: Kidder, Peabody & Co., William Blair & Co., Alex Brown (later Deutsche Bank Alex Brown) and from the time that I founded Lumen Capital Management. At the end, I’m going to sum up what lessons can be learned and may even have a surprise for you. Once this is done I want to begin writing about my view on the modern investment process, albiet with a detour or two.
I started with Kidder Peabody shortly after I graduated from law school in July of 1986. At the time the market as measured by the S& P 500 (hereafter SPX) after about a 4 year run was trading at 251.84. I spent almost a year training to be a stockbroker and was finally permitted to start trying to find clients in June of 1987. At the end of my 1st month as a broker the SPX stood at 318.66, a gain in less than a year of close to 27%. It was not hard to find people interested in the markets in those days. But then how could it have been. From it’s lows in 1982 the market was up in excess of 200%. The market had returned over 40% a year since it had broken out of a long consolidation period running from the late 1960s.
The markets dominated the cocktail circuit back then as much as they did in the late 90’s or real estate does today. As we entered the late summer of 1987 the market hit its high of 335.90 and then stalled out. It was down about 11% a couple of months later. On October 14th, the Secretary of the Treasury James Baker announced a record trade deficit and that perhaps the dollar should fall on foreign exchange markets. Like a pin pricking a balloon the money exodus began. The SPX lost almost 3% on 10/14, about 2.5% the next day and a nasty 5% to close out the week on the 16th. Investors had a weekend to stew over what had just taken place and their verdict on “Black Monday” was to sell. The SPX lost almost 58 points in one day- almost a 21% decline. There has NEVER been a similar daily loss in my investment experience. Even after 9/11 the market lost less!
Since its August highs the SPX had lost over 30%. To put this in perspective a similar decline after 2000 took about a year and half to go down the same amount. Here stocks gave back over a years worth of gains in about eight weeks, trading at the same levels it had also seen in April 1986. As bad as this was, more difficult days were to follow……to be continued.
posted by CR English at 11:04 PM
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