On The Money: Alan Steel
Does anybody remember Black Friday 13 October 1989? How about Black Monday 19 October 1987?
No? Well on the first day a reported “mini-stock market crash” knocked 191 points (or 6.9% if you prefer) off the Dow Jones Index. Why was that you might ask? What could be so serious? Well, apparently, financial experts got their knickers in a twist because because something called “a buy-out deal” for a company called UAL Corporation broke down. No, I don’t remember the company, either.
How about Monday 19 October 1987? Now that was a crash and a half ! The Dow Jones Index fell 508 points (or 22.6%!) in one day! Putting that into today’s terms that would represent a one-day fall in the Index of over 6,000 points. Caramba !
As to why that happened, Google it and you’ll discover that thirty-odd years later experts are still arguing over the causes. One thing is certain though- it had something to do with extreme panic… over something lost in the mists of time.
I remember both very well. On the first occasion I held a seminar in my offices with the main presentation given by a clever wee man from Kirriemuir, Dr David Cormack, former head of training at Shell International and an expert on Change. I recall him referring to the fall in the stock markets as being typical when sufficient people all get surprised together by news that’s perceived to be more than worrying, even if none of them actually understand why.
The surprise is quickly followed by panic, and when a herd panics it’s usually the case that you panic too, just to be on the safe side. And then you find something or someone to blame, to justify your emotional and sudden actions.
Surprise, Panic, Blame ! You probably play this out at home when you’ve been married for a while. I know, it’s happened to me.
Last article I wrote about the early days of Coronavirus and I suggested we all stay calm. Unfortunately, it’s all got out of hand thanks in no small part to a headline virus which not only led to stock markets like the Dow Jones index falling over 1000 points, but has led to a world shortage of hand gels and toilet rolls. Work that lot out. Anybody know where to get a guaranteed supply of dockleafs?
A 1000 points fall sounds a helluva lot, but in percentage terms it was about 4%. Much less than the “mini-crash” back in October 1989 that we’ve all forgotten about.
What I don’t understand is that when I went to my GP a few years back not feeling well for about a week and was checked over, she announced I had a virus. A virus used to be called “there’s a lot of it about”, and prior to that it was “a bug”. She then informed me that, being a virus, there was nothing she could prescribe, so I was to go home, stay warm, have the odd aspirin, and drink plenty of fluids, which I assumed included hot toddies. My grannie swore by them!
On hearing this diagnosis and advice I asked the GP if she was aware that the word virus came from the Latin? No, she didn’t. Nor was she aware that translated it meant “I don’t know, either”. She wisnae impressed.
If you turn on your TV news, glance at any newspaper, or even worse keep staring at your iPhone every two minutes, all you will see are shock headlines predicting hundreds of thousands of fatalities and hospitalisations all over the world. I’ve even seen a billion victims mentioned by overnight experts.
Panic selling yet again has hit stock markets. On a Fear/Greed indicator, extreme emotion has driven the indicator from a greedy 72 (out of 100) a year ago, to a panic-stricken 10 now. That’s two panics close together, up and down.
Records going back more than 80 years show that when the Dow Jones falls over 8% in any week, the average gain three years later is over 40% and over five years it’s up 65%. Yet research since the 1970s shows the average investor captures just over a third of these upswings, thanks to widespread panic induced by “legendary experts” quoted in headlines.
Today I saw a simple chart that showed the income yield on the FTSE 100 right now. Today it’s at the same level than when in the past, a Buy Signal signal was triggered for those looking to hold on for 3 to 5 years.
I’m sure there will be readers out there who will say…”ah, you fool, this time it’s different”. Sir John Templeton called them the most dangerous words in investment. I for one wouldn’t disagree with him.
Alan Steel is chairman of Alan Steel Asset Management
Alan Steel Asset Management is regulated by the Financial Conduct Authority. This article contains the personal views of Alan Steel and should not be construed as advice. Do check your individual circumstances with your advisers.