'87 and Now

Posted: Oct 20, 2012 12:01 AM

It seems that every October 19th, the anniversary of the 1987 stock market crash, the pundits resurrect the great Jack Bogle. 

After all, why not? 

He is the patron saint of “buy and hold” and founder of The Vanguard Group, and they allow Bogle to remind folks that anyone who was scared out of their stock positions on Black Monday has certainly lived to regret it. 

He talks about the 10,000 phone calls Vanguard received that day, and the hundred or so calls that he fielded on his own. 

Jack is also very quick to affirm that anyone holding long equities, or even buying during that panic, has enjoyed subsequent handsome returns “because the market stabilized and then went along its merry way.” 

Having been a broker during that time period, I have no disagreement whatsoever with anything Bogle currently says.

 However, in 1987, we were only five years into the greatest bull market of contemporary times and the transition from manufacturing to information was just beginning.  At that time, the United States had only one true competitor, Japan. 

College graduates were attending job fairs and deciding which company would be the recipient of their talents.  Houses served solely as a place to live (not flip) and foreclosure was not a strategy. 

The internet (Al Gore’s invention!) ultimately revolutionized the workplace and was seen as the creator of millions of jobs in the U.S., and the Federal Reserve’s balance sheet revealed billions of dollars invested in treasuries. 

In addition, the Glass-Steagall Act was still in full force.  From 1982-1999, had you simply bought into every market dip, including the crash of 1987, and even used leverage, you would have done exactly the right thing. 

Nevertheless, it’s now 2012, and over the past twelve years we’ve experienced the dot-com crash, the housing bubble, the credit crisis, and currently the sovereign debt debacle.  In fact, the worldwide slide that began in early 2000 is a mirror to the rise that started in 1982.  As we were on the cusp of a great transition, and all the benefits that came with it, now we are experiencing just the opposite. 

In 1987, would you have ever believed that no cell phones are currently being produced in the United States?  Can you have imagined 50% of recent college graduates either unemployed or not working in their educated field? 

Wouldn’t it have struck you as odd that a major financial firm (MF Global) would misplace over $1 billion of customers’ money, and no one goes to jail? 

As we acknowledge the 25th anniversary of Black Monday, this most recent October 19th should serve as a critical wake-up call reminding us that when buyers disappear, the results are devastating. 

But, of course, I think most people realize that fact, it’s just a question of how they respond.  Mr. Bogle needs to fully understand that the world has changed dramatically and the strategies of yesteryear are no longer applicable in this day and age. 

Back then, it was buy, buy, buy.  I would sincerely hope that if Jack Bogle took a phone call today, he would adamantly say sell, sell, sell.

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