"Old Folks" - Let's put things in perspective for the younger folks

[scfr]

Would any of you "older folks" care to share your stories about the 1987 stock market crash and what happened afterwards, to perhaps help alleviate some of the fears the younger folks may be feeling right now?

On Black Monday (October 19, 1987) I was less than a year in to my first "real" job out of college, so I had just barely gained my financial independence. While I had no debt, I had no savings and had the rent to pay on my little studio apartment. Even tho' I had no money invested in the stock market, when the market crashed I was frankly pretty terrified because I did not know what it was going to mean for the economy overall. I immediately started thinking about the Great Depression (I had heard many stories from my grandparents, and of course had read books about it and grew up watching The Waltons ), and wondered if we were heading in the same direction. As low woman on the totem pole, I knew that I would be the first to go if my company decided to lay people off.

On October 20, I woke up an hour early to turn on the news, and I read the Wall Street Journal obsessively. Pretty quickly, I realized that "what is going to happen is going to happen, and there is nothing I can do about what happens on Wall Street." I kept my head down, focused on doing my job well, and started taking awkward baby steps learning about cutting costs and saving a bit.

To make a long story short, the world did not end.

And some of the things that the "financial pundits" were talking about on the business shows back then, I now realize in hindsight were pretty funny, but there were probably lots of people who took them seriously. One I remember was a show where these supposed financial wizards sat around talking about how people were going to go back to canning and sewing their own clothes (out of necessity, very common Depression era activities) and so buying stock in canning supply and sewing maching companies would be a good move. I don't know how well those types of companies have done since Black Monday, but I'd wager they weren't the stocks that led the next stock market rally.

So, do NOT believe everything you hear on the TV and internet right now. If you want to watch the financial news, fine, but don't forget to turn it off and get on with your life. Focus on what you can control. To quote that great line from Star Wars: "Stay on Target! Stay on Target!"

[PrincessPerky]

love the quote!

[boefixepa]

All I know is that it's not as big a deal to me as it is to them.....I'm looking at a 20 yr average, not a one day drop, or a one week drop for that matter.

[pearlieq]

and so buying stock in canning supply and sewing maching companies would be a good move.

That's about the dumbest thing I've ever heard! Thanks for the laugh!!! I can only imagine what we're in for over the next couple of weeks if that's what the "talking heads" were coming up with before they had 24 hours and a ticker to fill with wild speculation and hand-wringing.

I can't say I'm thrilled, but I've got 35 more years ahead of me. I can ride it out.

[disneysteve]

Would any of you "older folks" care to share your stories about the 1987 stock market crash and what happened afterwards, to perhaps help alleviate some of the fears the younger folks may be feeling right now?

Prior to the 1987 crash, the Dow Jones Industrial Average had peaked at a then record high of 2,700. After the crash, it dropped to around 1,700. Last week, prior to the current correction, the DJIA hit a record high of 14,000. So in the 20 years since Black Monday, the Dow gained about 800%.

In 1987, the market fell 23%. This week, it fell 4.23%. Prior to this week, the Dow was up 10.6% for the year, so even after this week, it is still up 6.37% year to date.

In October 1987, I was a 2nd year medical student with not a whole lot of money to my name. Today, I'm 42 years old with a portfolio worth about $400,000.

If you are young, the correction shouldn't even be a concern, especially if you don't have much tied up in the market. If you are middle-aged like me (I hate that term) and have a fair amount invested, it might look bad on paper, but keep in mind that you've got another 20-25 years before retirement. For all we know, the market could return another 800% between now and 2027.

[JBinKC]

I am very familiar with the 1987 crash and the days after as well as the 1997/1998 crisis which was even a more impacting event percentage wise for the Asia/Russia markets. I was actively buying stocks with my cash in the days after.

All I can say if you have cash great and if you don't it is time to rank your stocks and sell your ones on the bottom.

This correction doesn't surprise me however, I am not going to rule out that we are finished with the slide. The market needs to capitulate IMO.

They used awfully dangerous words this week that has kept this market going since 2004 and especially after Katrina. The words "credit crunch".
An increasing money supply has been driving world markets in the last year and a half and not traditional ones like interest rate reductions.

Although I am in consensus with the board a buying opportunity will arise and the market will rebound I am not going to poo-poo the bears because eventually I think we are going to get in a situation in my life time that central bankers and/or the fed can't fix with their band aids and either a massive inflationary or deflationary event will occur in the states.

[Ima saver]

I lost about 11K this week and it is not worrying me. My mutual funds are still up 37K over what they were last Sept. and I haven't added a dime.

[Scanner]

I may have not predicted the correction or slide this week but I did predict ICF would test 80 and it's at 83 right now and showing no signs of bottom. I think 75 would be a good time to get in on real estate.

In fact, I think real estate is about to go on sale.

[Like2Plan]

One I remember was a show where these supposed financial wizards sat around talking about how people were going to go back to canning and sewing their own clothes (out of necessity, very common Depression era activities) and so buying stock in canning supply and sewing maching companies would be a good move.

Link to graph of US Annual Inflation Rate (CPI-U) - History - 1970 to 2005

This reminded me of some advice which was given back in the 70's and 80's when inflation was in double digit numbers. Have some extra cash? Invest in can goods (literally!). It was obviously made tongue in cheek, but the reasoning was the prices of food were going up so fast in the grocery stores--and you gotta eat.

[scfr]

Link to graph of US Annual Inflation Rate (CPI-U) - History - 1970 to 2005

This reminded me of some advice which was given back in the 70's and 80's when inflation was in double digit numbers. Have some extra cash? Invest in can goods (literally!). It was obviously made tongue in cheek, but the reasoning was the prices of food were going up so fast in the grocery stores--and you gotta eat.

Like2Plan - I remember being in the grocery store with my mom in the 70's and she said "I'm going to buy twice the usual amount of hamburger because next week it will be up 10-cents per lb." I think buying food ahead was something people really did do, and of course that probably just caused prices to rise even faster.

[Like2Plan]

In regards to your original question, I think a lot more folks will be impacted now than in 1987.

Back in 1987, there were a lot fewer folks invested in the market.
401Ks and IRAs were relatively new back then and INDEX funds only started to become widely available.

For DH and I in 1987, the direct impact was zero. We had exactly 1 stock and it did not "tank". Our other investmenst did not include any other stocks/mutual funds at that time.

There was a pretty good correction (or crash) back in 2000/2002 time frame (it makes the top 10 list of worst markets crashes in U.S. history) Link to 10th Worst Stock Market Crash: Total Loss: -37.8%. I think this made more of an impression because I think more folks were in the market. Anecdotally, I know some folks who had to delay retiring because of this. Their retirement pot was cut back considerably--They thought the market could only go in one direction (up) and most of their investments were in stocks and it took a few years to recover.

[Ima saver]

I took a prettygood hit in the 2000/2002 correction.

[JBinKC]

For some people the 2000-2002 period was not that big event for them. If you invested with the herd in the internet/telecom and technology area which was in a bubble mode and a large part of the index you got killed. However, if you invested in growth small caps non related to technology which had great accounting valuations or contrarian at the time with oils for instance those people didn't get hurt as much if at all during that time period.

[Like2Plan]

For some people the 2000-2002 period was not that big event for them. If you invested with the herd in the internet/telecom and technology area which was in a bubble mode and a large part of the index you got killed. However, if you invested in growth small caps non related to technology which had great accounting valuations or contrarian at the time with oils for instance those people didn't get hurt as much if at all during that time period.

I believe that a large number of folks are invested in the stock market through their 401K plan (which seems to be limited to funds of one sort or another) and may not own a whole lot of other individual stocks on the side.

I think it is important to be diversified. Also, you have to take into consideration your time horizon for when you will need the funds. A person who is scheduled to retire in the near future (and expects to draw from these savings), maybe shouldn't be 100% invested in the S&P 500 (or tech stocks back in 2000) unless they can weather the downturns.

[FrugalFish]

I'm part of the "life goes on" mindset. As well as that stuff about eggs and baskets. We have some very stable investments (not high yielding obviously) that are meant for nothing more than to carry us through a long, rainy day; then we have other investments that can ride the ups and downs of the markets through the long term; and then we are paying off our mortgage ASAP as that's a great investment IMO- guaranteed return and the security of always having a place to live.

In the end, all you really need to now is that nothing good or bad lasts forever.