Friday's Memories

Investment Analysis Clubs Saul’s Investing Discussions
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Just last Friday I was telling some of my co-workers how much it felt like the Friday before black Monday to me. I was a few year out of college at the time, but had started investing in high school, so I was “seasoned”. The market had been down a couple says, and when that Friday hit and it fell another 4% or so, I was smart and ready. I did not panic, I “knew” it would pass, no worries. I am not going to be a fool that sells. So I deployed most of my remaining cash and went to bed Friday happy I was so “wise” for such a young investor. That Sunday morning I boarded a plane for DC where I was being sent for a two week software development class for my company. I got up early Monday, went to class, ate lunch in class, and drove back to the hotel without the car radio on. My girlfriend-future-wife called me, and knowing my love of investing asked if I had seen the market. No, I just walked in the door. She told me to sit down on turn on the tv. The DOW was down 22%! Yes, 22% youngsters. That was a day. But it was too late to panic, I figured I missed it by then and I had no cash left to buy with, but at least I did not sell. Spoiler alert, it came back, but that didn’t seem so certain at the time.

Today was nothing compared to that. But we may not be done. If we add a black swan event to this, we could revisit 1987. Not likely. But back then there was a conflict with Iran, missles were fired. Will we get a little North Korea action soon? They seem to want to play nice for the Olympics. Who knows.

Have a plan, be ready. If we close down 1000 points again tomorrow, what is your plan. If this becomes the 10% correction we have not had in an excessively long period, what is you plan? Saul’s plan is simple, it never changes: 100% invested, sell stuff that held to buy stuff you like that seems oversold.

A market correction at 20% seems highly unlikely to me as that is usually kicked off by a recession. The US and world economies are growing, no recession is coming. We got a little spooked and the computers went insane, we are still ok. Just wait until your robot car and robot vacuum cleaner conspire to rule the world, then you can panic.

P.

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Black Monday … ah, the memories.

In 1987 I was managing customer service for a national manufacturer. Our retirement plan was the simplest I’ve ever seen. We had 3 choices to make: US stocks, foreign stocks, and “cash equivalents” or bonds. I, of course, was always in a mix of US and foreign stocks. Even though I was not following the economy very closely, several things bothered me. We had inflation and high wages, and companies had been taking on debt with impunity.

About 2 weeks before Black Monday, these factors and a few others led me to decide to go to cash for awhile. Back then my company was not used to someone changing their allocations. It was really meant to be something you choose once and leave alone, like your W-2. But I asked the office manager if she could change mine and she replied it was unusual but yes, she could. Like me, she was swamped with work (we were setting sales records every month) and said it would take awhile.

A week later (1 week before Black Monday) I asked her again if she had changed my allocations. “Soon, Dan, I promise.” Every day for the rest of that week I would tease her about getting this done and being good-natured she always replied with some humor that she would do it again but I was a pain in the … neck, or something.

On Black Monday, towards the end of the day, the topic of the markets was on everyone’s mind. When I saw our office manager, she looked at me and had this look of, “Oh, $hit” like she just remembered what I had asked her to do. Her eyes got wide, her face got read and she burst out crying.

My little account back then was pretty small, considerably less than $100k. But I was pouring all the money I could into it, which was kind of unusual for someone my age back then. After Monday, it was 25% less.

I considered suing for the loss (probably would have won too) but realizing that wouldn’t be the best career move, I let it go. But I decided then and there that if I ever had the chance, I would never again let my retirement funds be dictated by someone else who didn’t care if I made money or lost money as long as they got commissions. When I married, my wife was (and still is) a registered nurse. We have always put as much money as we could afford into her retirement plan. And once a year, I take out every single dollar allowed, and move it to her private IRA.

So Black Monday had a good side for me and taught me a valuable lesson. And it only cost me about $15,000, which we have recouped many times over by buying stocks instead of choosing among a lousy group of mutual funds, which I’m sure made more money for the plan’s administrators than for any participants.

In 1987 I was at the mercy of the wind. In 2018, I have a plan and I have stocks in companies that I am confident someone will be willing to pay up for. This dip, whatever shape it eventually takes, will become that little squiggle on a chart some day. See it, right there? Just a minute.

Alexa, Enlarge. Now can you see it?

Dan
*back then that seemed like a huge sum.

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Good post Dan, and good lessons learned. In 1987 I was early in my airline career and had little skin in the game. I did have to solace my mother as I had her invested in the market with the proceeds from Dad’s insurance after he had passed away. She was a bit distraught but after that crash she now takes these swings in stride.

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Let’s see, October 19, 1987…I don’t have much recollection. I was 3.

I have heard it referenced many times, however.

https://en.wikipedia.org/wiki/Black_Monday_(1987)

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Thank you P and Dan for sharing your Friday Memories. i also had gone thru the tech bubble and the crash of 2008. Since rediscovering this board, i feel more confident about my investment choices. I didnt do as well as most of you in 2017 but sure still beat the S&P. and it feels great to be in charge of your own investment. I have been searching for an investment club for years. I finally found it. Thank you all for sharing.

L

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Hi Dan,

Good story. But perhaps your office manager did you a big favor by not getting you out of US and foreign stocks and into cash? If she had gotten you into the bond fund, you’d have saved a 25% haiur-cut right off the bat, but then been forced to decide when to get back into stocks. This might have led you down the path of market-timing and heart-break:-) You don’t say, but I suspect you left your money in stocks, and were back in the green within a year. That is the lesson I learned from Black Monday. Panic selling is just that, and unless we are on the precipice of Armageddon, the markets will return to sanity soon enough. This time doesn’t feel like Armageddon to me. Just a little nervous worry about inflation (speaking of 1987!) and rising interest rates because of some good job numbers. I doubt this is the beginning of the end.

DT

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So Black Monday had a good side for me and taught me a valuable lesson.

I had started investing about a year before Black Monday. I had more than doubled my investments…and I was certainly close to a genius since I had mastered using margin.
Back then you traded by calling on a phone. Several months before I started using a clunky DOS trading program from Schwab. I canceled the service (you had to pay monthly) since the interface was so bad…I figured I’d try it again in a year or two.
On Black Monday you could not get through to buy/sell because the lines were jammed…but I heard that the DOS program worked fine because you were dialing in on a modem.

Anyway, I was fully margined, got a margin call, lost almost 100% ($10K) and found out I wasn’t a genius all in 2 days.
Best lesson ever.

Mike

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Folks buying on margin really hate Black Mondays, 1929 stock crash, and days like last Monday…when they can get margin calls…or get sold out at a horrendous loss.

Back in 1929, you could margin with just 10%…

Yeah, I lived through 73/74 with the market down 75%… and 1989 and 1999…and 2008…

Never panicked and sold.

Now happily retired.

t.

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