Case Study - Black Monday (1987)
In the previous post, we gave an introduction of how greed and fear can cause massive havoc in the market.
Today, I’ll go in depth, and do a case study of emotions gone wild in the market - and the resulting destructive effect!
Before we touch on that, let me share you a quote by Sir John Templeton, the legendary investor of Templeton Growth Fund’s fame - “Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.”
Wise words indeed!
If you notice, the stock market history is a never-ending cycle of boom and busts. And when we speak about boom and bust, few come any bigger than…
Monday, 19 Oct 1987…
That fateful day, also known as the ‘Black Monday’, saw the second largest one-day percentage decline in stock market history. Ever.
The S&P 500 fell 20.5% while Dow plunged by a monstrous 22.6%!
The carnage was not limited to the United States alone. The intense fear and panic was elsewhere, spreading without mercy. Regional markets such as Hong Kong, United Kingdom, Canada and Spain all took crushing losses of an average of 22% by the end of October.
There is an old saying that markets are driven by just two emotions: Fear and Greed. While this may seem over-simplified, it’s often true!