Could '87 Stock Crash Happen Again? BU Prof Says Not Likely

Oct. 8, 1997

WACO, Texas - It was called "Black Monday," and for good reason.

On Monday, Oct. 19, 1987, the worst financial day in U.S. history occurred. The New York Stock Exchange went into a free fall and by day's end, had suffered an amazing 508-point drop, the largest in history.

The market lost 22.6 percent of its total value, far surpassing the October crash of 1929, when it lost 12.8 percent.

As the 10-year anniversary of the '87 crash approaches, the question is being asked often: Could it happen again?

"I just don't see it," believes Baylor University's Dr. William Reichenstein, professor of finance and the Thomas Powers Professor of Investment Management who has studied and followed the stock market for 25 years.

"I do believe a 10 percent overall correction in the market is very possible over time, but I don't see a 500-point one-day loss. I remember in 1987, a week or so before the crash, there were several shows like Nightline and others that featured stock experts and they all said the market was due to go down. And money managers believed them and sold stocks. By that Monday, everybody wanted to sell.

"Also," he adds, "portfolio insurance was very big then. That's when the market starts to fall, immediate sell orders are sent to get rid of stocks and go into Treasury Bills. It created a snowball effect. Today, there is a lot less portfolio insurance than in 1987."

For those who did not sell in '87, Reichenstein says their patience has paid off, and paid off big. The market closed at 1738 on Oct. 19, 1987. Today, it's over the 8100 mark, almost five times higher than 10 years ago.

"The psychology of the whole thing is interesting in that these things always seem to happen in October," he adds. "There's really no reason for it, no pattern. It's just a coincidence that October seems to be the stock market crash month."

For more information, call Reichenstein at (254) 710-6146

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