REMEMBERING BLACK MONDAY

I received many posts from people about their Black Monday experience, and they are worth sharing.

On the occasion you mention, at our firm we each were assigned to poll money managers we trusted; high among them was Reich & Tang.[i] We kept in touch regularly and then shared our compilation of the “brain trust’s” analyses of the unfolding crash. I recall Joe Reich saying something to the effect that Reich and Tang was buying because at these prices, the companies were either huge buys or the U.S.A. was collapsing. In the former case, they would make a great deal of money; in the latter, losing more would not be the biggest problem the firm faced. One of my assigned contacts was Clark Clifford, a self-described child of the Depression, but then the Chairman of First American Bankshares, a conglomeration of banks. He, in turn, was calling his banks to determine if there was a Depression-era run on them. I was happy to tell Joe Reich that Clark Clifford could find none. (A note on Clifford: a tall, handsome, elegant, but seemingly austere, man; former White House counsel under Truman; Secretary of Defense under Johnson; an extremely powerful Democrat feared by many, he had begun life as the son of a Missouri-based railroad worker and a schoolteacher who was a national story-telling champion.)

Jim

I wish more people could grasp that ‘markets can do anything.’ They can repeat those words, and can answer that correctly on a test, but they don’t really grasp it. In 87, everyone started selling all at once, for basically no reason. There was no smoking gun. People always want to know, “Why did so and so happen in the market?” Truth is, sometimes there’s an answer, sometimes there’s not.[ii]

Ed Thomas

I remember the 1987 crash too. I was at university, studying Finance. I remember the lecturer didn’t even bother to change the topic to the day’s events or even broker a discussion. For me it indicated that academia was so out of touch with reality.

Christian

I lived this as Branch Manager for a regional brokerage firm then in existence, Interstate Securities. Lots of my customers were RJR employees and retirees. Lots of them, as well as others, sold RJR shares; many RJR employees or retirees also bought RJR that day. The sellers, in general, were “market followers,” the buyers were, in general, not. The buyers bought because, as some said, “They are giving their money away.” These buyers thought of RJR stock as “money.” On that day, they were right. They didn’t know what price they were selling or buying at, as the system for reporting was still antiquated and the reporting prices were two hours behind.  The sellers said, “I don’t care, sell.” The buyers said, “I don’t care, buy.  What a day![ii]

Bill

[Volume on the NYSE was 600 million shares, 3.3 times the normal volume. RJR stock traded at about $34 a share. Ironically, one year to the day, on October 19,1988 at a board of directors dinner, Ross Johnson, the controversial CEO, proposed a $75 per share buyout of his own company. KKR, the leveraged buyout firm, outbid Johnson and bought RJR for $109 a share, over 3 times the price a year earlier.]

I recall two incidents showing that America has a ‘Main Street’ that only vaguely connects with ‘Wall Street.’ That millions of people go about their lives with no thought of ‘the market’ which so many of us focus on. And that, perhaps, their world is far more real than mine.

I was living in Manhattan and my daughter was in college in Madison, NJ.  She had a babysitting job in Summit on Monday night.  The Summit, Short Hills area was home to lots of Wall Street management.  The mother met her at the front door. Obviously, the lady had the crash on her mind.  Without prompting she said, “Holly, every house in this town is worth 10% less than it was this morning.”

I had borrowed my daughter’s car for a weekend trip.  Early Tuesday, I drove over to Madison and left her car at the campus. I walked down to Main Street to catch a bus back to New York.  While I waited, I stopped at a coffee shop.  At the counter, two men were seated next to me, a couple of blue-collar guys.

One said to the other, “Were your stocks down yesterday?”

The second replied, “No they weren’t.”

The first, “You mean your stocks weren’t down!”

The second, “Oh, I thought you said ‘socks.’ I don’t own any stocks.”

Quite different reactions to the crash from ‘Wall Street’ and ‘Main Street.’ The Black Monday responses can remind us that even the darkest day may be followed by a brighter and better time.

[i] Reich and Tang was a respected investment adviser in New York City.  It was my employer on Black Monday. This remembrance was from Jim Hamilton, the investment consultant that I have cited several times.

[ii] Early in 2023, we will discuss the possible reasons for Black Monday.