My father had an interesting hobby of keeping papers of historical events that occurred in U.S. History during his and my lifetime. Upon cleaning out my garage a couple weeks ago, I came across a USA Today paper from January 1988. When looking through the money section, the entire section was dedicated to the crash of 1987 and steps that you can take to improve your portfolio for 1988 and years to come. With the recent occurrences of Lehman Brothers bankruptcy, Merrill Lynch’s sellout to Bank of America and government bailout of AIG, we have seen the market drop over 400 points (500 and 450, respectively) in two of the last three days. Nearly the same level as that dreadful day back in October of 1987 infamously known as Black Monday.
The Crash Heard Around The World
Black Monday occurred Monday, October 19th, 1987. On this date, stock markets around the world crashed, shedding a huge value in a very short period. The Dow Jones dropped 508 points that day alone for a 22.6% decrease. To compare that in today’s term, that would be equivalent of the Dow dropping roughly 2700 points in one single day (Assuming the Dow was at 12000-remember those days?). What’s most notable about the crash of ‘87 is that, by the end of the year; most of the markets had already recovered and the Dow Jones actually was up 2.3% for the year.
More from GFC, Below
New Crash, Same Advice
Nonetheless, one of the articles I found most interesting was talking about what the crash of ‘87 taught us, and what we can do going forward as investors to be better prepared. It’s funny when I read the article and realized that it was written almost 20 years ago to the day. When I read those same bullet points, I realized that some same principles can be applied to today’s crazy up and down markets.
Be Ready For Volatility
Buckle your seat belts because the market will continue to swing. There’s nothing that we can do about it as investors other than stay the course and reevaluate your financial plan on a frequent basis.
Don’t count your pennies
I always urge clients to stay away from penny stocks or stocks that are traded less frequently, because you never know how volatile they may be. Fannie May used to be a $60 stock and then plummeted to $5. Many may have wanted to swoop in and play the penny stock game. I hope you didn’t, because it’s currently trading around 50 cents.
That has not changed, and actually international has been the way to go for the past several years. Companies continue to expand across the globe each and every day. Take some caution. International investing involves special risks such as currency fluctuation (weakening dollar anyone?) and political instability and may not be suitable for all investors.
Diversify, diversify, diversify
That hasn’t changed and that will never change. Anytime I meet with a new client, I always begin the portfolio discussion with asset allocation and why that is important. Being diversified is what can protect you when the markets are fluctuating. It won’t prevent you from losing money, but will leave you better prepared when the market does recover.