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The stock market crash of 1987 – a time to reflect.

May 13th, 2009 · Greg Atkinson · 5 Comments

The stock market crash of 1987 is often overlooked these days when the current economic crisis is debated. The major reason for this I suspect is that the crash of that year was driven by factors much different to those driving the current stock market falls. However it is still very interesting to reflect on the events of 1987 and consider how much and how little the operations of the financial markets have changed over the last 20 years.

The best way to get a feel for what was going through the minds of investors back then is to simply listen to what some of the leading players were saying in 1987. Therefore I have included clips from the PBS TV program Wall Street Week that originally aired just days after the crash.

If you are serious about investing then I strong suggest you take the time to watch each one if the clips below.

If you want to read up a little on the events of 1987 then this summary from Investopedia is a good starting place: The Crash of 1987

Wall Street Week (Oct 23rd 1997) Part One

Highlights:

  • The introduction by the host Louis Rukeyser is a little long but he makes some good points about what is really important in life.
  • Pay attention to the section regarding technical analysis. Seems the tech guys were right this time. Actually the 1980’s was considered by many to be the golden era for technical analysis.
  • The discussion regarding markets falls and recoveries is interesting.
  • Just as today, the bulls versus bears debate raged on. In the case of the 1987 Crash the bulls were right.

Wall Street Week (Oct 23rd 1997) Part Two

Highlights:

  • Part Two opens with some very wise words.  (Sir) John Templeton gives some pretty good investment tips through the program.
  • There is an interesting discussion regarding how government policy impacts the markets and what the market would like to see governments do.
  • I suggest you pay particular attention to the discussion around The Great Depression (around 6 mins into the clip).

Wall Street Week (Oct 23rd 1997) Part Three

Highlights:

  • Personally I start to get a little weary of Steven Einhorn (Goldman, Sachs & Co) early into this clip. It just goes to show that even after 20 years bankers still look and sound pretty much the same. Mind you he was right that a recession might be coming.
  • If want to see an example of a long term stock market bull then head to the 3.30 minute mark. (Sir) John Templeton was certainly bullish and over the long term he was right. I wonder what he would say about the current situation if he were still alive?

So how did things turn out of after the Crash of 1987. Well the stock market did recover (see: Dow Jones since 1974) but the stock market was telling us something and much of the world suffered a major recession in the 1990’s.

Although many people seem to compare the current economic crisis to the Great Depression maybe we should be focus on the events of 1987-1991 a little more closely? Maybe this time around the stock market falls and the impact on the global economy are closer and more severe? Does this tell us anything about what governments should or should not be doing?

But rather than I rant on as always, I would like to hear what others think of the Crash of 1987 and if there are any lessons we can learn from it? Is the crisis we face today similar to how events unfolded between 1987 and 1993? Are we destined to go through boom and bust cycles continuously simply because we fail to correct mistakes made in the past?

Maybe Sir John Templeton was right, if you are an investor you just have to be be prepared for booms and busts, for they are simply part the investment cycle.


5 responses so far ↓

  • 1 pat // May 14, 2009 at 8:35 pm

    i do not think this is a 1987 -1993 crash recession this is a 1969 to 1975 commodity boom come recession stagflation event replay .we are now in mid 1973 with unemployment rising fast except one rouge figure and a wage breakout coming by the end of this year. inflation will be high by next year end with to much debt and money printing by this govt.just wait and see.

  • 2 Greg Atkinson // May 19, 2009 at 12:10 pm

    Pat…yes I think the 1970’s holds some lessons for us as well. I agree with your comments about inflation, I think this will be the next battle to fight especially if oil prices take off again.

  • 3 Matt // May 19, 2009 at 10:45 pm

    In your article, you pose the question: “I wonder what [John Templeton] would say about the current situation if he were still alive?” I help maintain a relatively new site (linked from my name) that aims to preserve Sir John’s legacy, and we try to consider that very question in every post. From time to time we invite those who knew him and his investing philosophy well to weigh in on what he might say or do in different situations, and we’d love to have some new voices in the discussion, so please do drop by for a visit if you get a chance and let us know what you think!

  • 4 Gary // May 30, 2009 at 10:43 am

    Interesting clips. Thanks. It is good to look back sometimes and see how little has changed 🙂

  • 5 Greg Atkinson // May 30, 2009 at 10:44 am

    Matt…I had a look at the site, looks good. Good to see a site dedicated to Sir John Templeton. (I left a comment as well!)

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