Page 53 - Phonebox Magazine November 2012

October 1987 was quite a month. Those in the south of England at the time will recall waking up one Friday morning to the aftermath of one of the worst storms to hit England since records began. Whilst it was not technically a hurricane, for those who experienced it (including myself) it might as well have been and the wind speeds were equal to that of a hurricane. Eighteen people lost their lives in England and, as you can imagine, it was a pretty depressing weekend that followed.
my clients sold their investments in a near panic following the crash – the worst thing they could have done.
Just three days later, on the Monday, a financial storm hit not only the UK but markets around the world. In just two days the FTSE 100 dropped 22%, the equivalent today of it falling from 5,800 to approximately 4,500. The cause of the crash is still disputed but the most common theory is that 'program trading' was to blame. This is where computer programs automatically sell shares as prices fall, leading to an exacerbation of the falling market.
This illustrates perception is a powerful factor when investing but can in reality be misleading. Many people will perceive 1987 as a poor year for the FTSE 100, whereas it was actually a year in which returns were positive. A more accurate statement would be that it was a very volatile year.
By the end of the month the FTSE 100 stood at a level of 1,749. Twenty five years later, at the time of writing, the FTSE 100 stands at 5,822, a rise of 233%, although this does not include dividends, which make a considerable difference to the return. The reaction of investors to this was interesting. In 1986, Personal Equity Plans were introduced and consequently the crash in 1987 saw many people hold investments in shares during such a down turn for the first time. I remember many of
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Sources:
FT.Com – Lessons from the 1987 Crash Schroders Investment Management Yahoo! Finance
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Lessons did at least appear to be learnt. During the next big slump in 1998, the market fell 25% from July 20th (6179) to October 5th (4648) but few of my clients moved any money, showing the experience of having been investors for a decade or more.
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