Art Cashin of UBS reminds us:

On this day in 1987, the stock market suffered its worst crash of the 20th Century, even worse than 1929. The Dow lost 22% in a single day. Each year as the anniversary of the great ’87 crash approaches, I get requests from what has become a steadily dwindling number of ’87 veterans to repeat my follow-up poem, “The Insurer”. For survivors of October ’87, the memories are seared into our psyches not unlike veterans
of some great battle. For, as in a battle, not all who participated survived (financially). It was an amazing couple of weeks in which the wheels almost did come off the locomotive. Someday, maybe I’ll write a book about it.

Anyway, below we repeat the poem. It was written in the manner of Edgar Allen Poe’s, “The Raven”, though it lacks even a scintilla of his talent and clarity…..somewhat like a stick figure rendering of the Mona Lisa. But… do the best you can.

While all of the references will be familiar to veterans of ’87, I have learned some folks who read these “Comments” were in Pampers at that time. So we’ll give a quick one paragraph synopsis of the background to the ’87 crash.

A Brief 1987 Recap – Even if there had been no “October Surprise”, the year 1987 would have been a remarkable one for Wall Street. The Dow started the year below 2000 and ran to 2722 by early Fall. (A gain of nearly 38%.) The rally was breaking all the old rules. A group of guys in Chicago came up with a new rule called Portfolio Insurance ( or Dynamic Hedging) which might be synopsized as buy strength/sell weakness (we’ll explain another day). The U.S. dollar was weak and the subject of controversy. There was some conflict and confrontation in Iran (U.S. bombing Iranian oil platforms). The President’s wife and right hand had gone into the hospital for a rumored cancer operation. And there was a new SEC chairman who was misquoted in the midst of the free-fall suggesting that maybe markets should close. The misquote greased the skids.

Okay, that’s enough background. Now – “The Insurer” (after the jump)

Once upon a Monday dreary
Traders waited worn and weary
As they gazed upon news tickers
warning of the day in store
Foreign markets were imploding
sending senses of foreboding
With positions overloading
sellers would be bringing more
To dump upon a bloody floor
October now had past its middle
as investors faced this riddle
With their Quotrons they would fiddle
looking for The Bull of yore

Greenback’s value falling quickly
trade deficit behaving sickly
And with Iran, relations prickly
raised the specter of a war
Ahead a day that promised gore

So on the open there came selling
much faster than the tape was telling
While in Chicago they were yelling
“Dynamic hedging” is no more!

Specialists were inundated
as futures prices unrelated
Kept the selling unabated
stocks once eight now sell at four

Futures dipped below the cash now
and insurers made a dash now
Trying not to be the last now
rushing for the exit door

Then news reporters often shrewder
began misquoting Chairman Ruder
A trading halt?…a new intruder
caused yet more panic on the floor

Bethesda had a guest named Nancy
an operation somewhat chancy
Helped to make the markets antsy
adding to our selling lore

Throughout the day as prices melted
brokers, dealers all got pelted
And bank accounts not safety-belted
were blown away forever more

The bell, it rang to end the sorrow
while traders ran to banks to borrow
To have an ante for tomorrow
not knowing what it held in store

Two dozen years have since gone by *
with circuit breakers now we try
To tame computers gone awry
and restore calm upon the floor

The Dow now stands full six times higher *
than when it closed that day so dire
despite two wars and terror fire
the Bull arose to run some more

This anniversary, headlines new *
dwell upon that day we rue
They ask us veterans to review
a time that left us scared & sore

Yet chills we get from déjà vu *
fear that banks may run askew
While trading partners threaten too
as in that sad October yore.

But keep your faith it’s a new day *
though there are hints that skies may turn gray
We’ll hope such clouds won’t bring a blue day
let’s hope the Bull returns once more!!
*Updated Revisions

Category: Markets

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

24 Responses to “October 19, 1987: Dow Down 22%”

  1. mauka says:

    “Black Monday” was 24 years ago today – October 19, 1987. On that date the Dow Jones Industrial Average (DJIA) fell a staggering -22.6% (508 points) closing at 1738.

    What followed was a Secular Bull market that saw the DJIA advance by +561%, or 9,759 points, closing the decade at 11497.

    In the past eleven (11) years, the DJIA has advanced a worthless 80 points, closing yesterday at 11577.

  2. Jonathan says:

    I would have been 7 years old when that happened. I would be interested in an old-timer’s take on how that compares to what we have seen 2008 – forward.

  3. jaymaster says:


    I graduated from college and started my first real job (as an engineer) in June 87. I had been a closet investment geek for years, and I had finally started my long dreamed of personal investment plan in September, with the purchase of some Vanguard funds.


    I stuck to my guns though, and continued my biweekly purchases during the ride down. It was a valuable lesson in buy low/sell high/dollar cost averaging.

  4. RW says:

    I liked that bit of doggerel at the time and still do but even 24 years later my stomach still clenches at the memory.

    One thing I remember vividly was that for a period of some hours, quotes were meaningless — mostly frozen but some bouncing wildly and apparently at random –and specialist desk after desk just stopped answering the phone.

    I didn’t need the HFT “flash crash” to tell me the system can become chaotic, unpredictable or even completely inoperative; been there, done that and got the ’87 T-shirt.

  5. raholco says:

    I was in Amsterdam visiting relatives when the Dow Dive hit. I kept wondering why I was seeing lots of pictures of the NYSE on the Telly, it was’t until I got to Schipol at the end of my trip when I discovered the market carnage. I didn’t bother to ask, and since it was my first time overseas that I could remember, I just looked back on the whole thing with some amazement that the world as we knew it didn’t end-but the seeds to the current crises was sewn with this incident.

  6. inessence says:

    I remember it like yesterday. I was on the bond trading desk at Boettcher & Co., a regional bond dealer in Denver. Dow Jones was a waterfall that day and govies were like a rocket launch. Stock jockies on the floor were as white as sheets…didn’t know if they could make it out of the building. After the close I had a side bet for a hundy with a fellow bond daddy that the Dow would open down the next morning…easiest scratch I ever made…except for my ringer on the O.J. Simpson trial outcome!

  7. flocktard says:

    I remember the day well- brokers were too scared to even answer their phones.

    But I called my broker at Kidder Peabody and placed an order for General Electric at a fantastic discount to Friday’s close for every loose dollar I had, and he responded with words I never forgot:

    “Kid, ya got guts- and guts deserve to be rewarded.”

    And so I was- by next Spring, everything was back to where it was, and GE was still raising it’s dividend. I was proud of myself- a wise ass kid who didn’t panic like the pros did. I held on to the stock for years, and with the reinvested dividends, I had enough for a large down payment on a house.

    Ahh, America- too bad you all missed it.

  8. raycharles says:

    I have a similar story to flocktard,

    I was 18 and had moved to Orange Co. California that year. I was working for a retailer and recall how much the stock dropped from 2o’s to the low teens. But I had total faith that the co would survive , they were opening a store a week after all. I went and opened my Schwab account at their office in Irvine. I remember signing over the paperwork and the looks from the guys in the office that day. It wasn’t a lot of money but I wanted to learn. It gave me a chance test out an old saw I had been accustomed to hearing from my parents… “It’s not how much money you have, it’s what you do with it that matters.” It was true for me.


  9. ben22 says:

    flocktard and raycharles,

    those are great stories. thanks for sharing.

    I was curious if you bought in 01/02 or 08/09 with the same optimistic outlook that you’d grow your money in the stock market?

  10. constantnormal says:

    And to think that people were spooked by the “flash crash” … I remember that week … “memories seared into the psyche” has it exactly right. The thing that made Black Monday memorable was the complete collapse of the trading systems, overwhelmed by a tsunami of program trades, automatically responding to overly-simplistic algorithms.

    I still have copies of the WSJ from that week, with sketchy-to-blank pages of a few outdated and inaccurate closing quotes. It was three days before Merrill Lynch could even confirm whether or not my orders executed — and I strongly suspect that the execution prices were made up out of thin air, things were that far out of control. (I liked the prices I got)

    Today we have several orders of magnitude greater automated trades, faster, completely dependent on automated systems, no specialists to step in and try to hold the line, and an unknown-but-huge amount of trading taking place in dark pools. The “smart money” has the same naive faith in hedging strategies backed by dubious leveraged debt instruments that are unaudited, as the portfolio managers had back in the day toward “portfolio insurance”.

    What could go wrong?

    This is why theREALLY smart money is in cash this time.

  11. bobby says:

    Seems like yesterday! I ‘m not even sure I had my series 3 then ( I did have my 7) —In some manner, I ended up being a futures broker…Too long ago to remember the details, but I had no clients on either side…I absolutely remember watching every down tick on some ancient futuresource platform…

    The world was most assuredly coming to an end that day…

  12. ToNYC says:

    First time the USZ87 jumped three full points. The bond was the best trade that day.

  13. raycharles says:


    The short answer is yes-in 01/02 08/09 I was still buying. Not always the same things.
    My life was altered by that first experience in stocks. I had seen that it was possible to do well when things looked bleak and I always looked for those opportunities. And I would eventually enter into a career the financial services. First at Sir John Templeton’s mutual fund co. ( he was among the best at buying into panics) and then as a broker at E*Trade in 95 -99. Low on the totem pole positions mind you but my career choice reflected the values that I had then. In 99 I bought my first new car and a house. In January 2003 when it was considered the absolute wrong time to build a house, I built my first house. I remember that well because the old house was being torn down when the US was invading Iraq. The house is not and has never been under water throughout this whole real estate mess. That part I guess is combination of mostly luck and good location.

    Optimism and the stock market….sure that’s why there is a stock market. BUT it’s not the only market, that part I am getting more wise to. I bought some silver in April of 09 and it’s done very well for me. But since I have a love of technology I gravitate to small private companies and work to gain equity in them and that has been financially rewarding lately too. I learned that at E*Trade, which had fewer than 100 people when I joined. I didn’t get rich from their IPO but I took what I did get as an employee and made smart choices.

  14. Majorajam says:

    About the only prestigious institution Leland and Rubinstein aren’t associated with is Chicago.

    Clever poem though. Also enlightened is the emphasis on fx, and what that reflects of the unintended consequences of policy, in this case the Plaza Accords (not least for a generation of Japanese). The implications for the present are legion.

  15. kevin r says:

    I took (and passed) my Series 7 that Saturday (10/17). At the test people were talking about the market’s rough ride on Friday. I went to work at Schwab on Monday before market open, as I was customer support at that point for their PC trading product. I walked over and talked to the guy who reviewed orders that were entered via the product. There were more than he could count, and way more than he would be able to get reviewed. People had been entering sells all weekend.

    The market opened and the trading computers went down pretty quickly. On the quote feed I had been watching some put options that month. They went from a couple of bucks to 99.99 (maxed-out the display). Berkshire dropped down to $3000. That would have been a good time to buy. We ran off paper tickets the rest of the day and the next two. I did not see it first hand, but heard they got all those tickets in a room later that week ran a virtual rerun of the market.

    I am also pretty sure the company should have technically been shut down that week, based on reserve requirements. Seems a Chinese client outside of the US had gone crazy with naked puts using very little money down. Management liked that options commission, I guess. I remember scrolling the 3270 screen, page after page of disaster. He told them too bad, he was not going to make good. Counterparty risk has always been a bitch.

  16. DrungoHazewood says:

    Mine is a tale of two setbacks. Graduated in June of ’81 in ChemE into one of the worst massacres you have ever seen. The chemical sector was eviscerated. It was biblical. Only 1/3 of my class got jobs, and these were, although I wasn’t, some of the best students available. Chem plants were being shuttered all over the country. I worked in a bowling alley for a while. Finally got a job in a coking plant in ’84, and it was nasty. Super heavy industry, but it was one of only 15 surviving coking plants in the US, and car production was really ramping. The money was schweet! So like a pinhead, I start buying stocks. The whole time my Dad kept telling me about the ’29 crash, but he was secretly pissed I was making a mint. Things went up a lot, and by ’87 I had some serious net worth. I have subsequently learned that this is when you look out for the brickbat that’s about to hit you squaw in the nutz. And boom der it was! As I recall the market had already fallen some from the 38% gain earlier in the year, then the real final rout happened. The Raygun said hold on, so that’s what I did!

  17. rktbrkr says:

    Thats when we learned the market was too important to be left free and the Plunge Protection Team was introduced. Since then we’ve moved to activist Fed management of the markets “we want high asset prices”!

    What will the Fed do if there is a sudden, unexpected recovery and they’re suddenly way underwater , essentially bankrupt, with all their long bond exposures? I’ve heard several experts on Bloomberg state it would only take a 1/2% blip up to put them in that position. What actions would they take to save the central bank.

  18. ashpelham2 says:

    My dad was taking me to Pop Warner Football practice, and I asked casually why the news was all aflutter about some stock market thing. He didn’t have much to say. I suspect it’s because he didn’t fully understand himself.

    And to think that this is what I do for a living now. Perhaps having little skin in the game makes me a great observer, impartial to the ups or downs, so I can think more clearly for my customers.

  19. mote says:

    At the time, I was a unit supervisor with an oilfield service company. That morning, we had just arrived on an offshore drilling rig off the Texas coast. Spent the whole day rigging up our equipment, so I didn’t hear what happened until around midnight.

    My stock portfolio had been sold in August, but I was in sole possession of a deep in the money S&P100 Index call option that went up in smoke. Bought that one too early. C’est la vie.

    Started investing in 1978, but took a sojourn from 1995 to 2001.

  20. gibbswtr says:

    Here is an old timer’s view. I was at Bear in those years on the middle markets desk working with smaller banks and insurance companies. I had started in the business in 1973 when I was 27 so I had few years under my belt by then. The difference between 2008 and then was the issue of information flow and communications. There were not a lot of Bloombergs around most of the bond desks were using telerate ( who?) and this was before widespread use of personal computers. There was no yahoo or free quotes for anyone not in the business. Therefore almost no one understood the mechanics of what was happening. In 2008 it was pretty obvious was was happening and why it was happening we still did not know who was ultimately going to be nake when the tide went out but we knew that massive repricing of assets was underway and that huge leverage had been applied. People in 2008 could short whole markets which you could not do in 1987, the trading in 2008 was more electonic and had higher capacity than in 1987 ( which actually accelerated the decline of the old specialist system). Even those of us on the institutional side were working with rumors and lack of information the retail guys were totally at sea. The federal policy response was the Fed asking corporations to annouce stock buy backs sort of similar to Richard Whitney in 1929 buying 10,000 US steel.

    I was in combat in Vietnam and the horrors of those days have almost an equal place in my memories as that day in 1987. The problem is that 1987 was the first example of financial weapons of mass destruction which recurred in 1998, 2000, and 2008 and still exist. 1987 can and will happen again.

  21. VRWC says:

    I remember the day well…. staring at the screen saying -508 in disbelief.

    My grandfather, who had been a professional investor & trader since 1929, was still active daily trading his own account. His instints had told him something was up and he had gone from being heavily margined in August to having net cash for the first time in years by mid October…. thankfully he encouraged me to do the same, although my account still looked pretty bloody at the end of the day.

    When I called him at the close to ask him about his thoughts, his answer was priceless, with a laugh he said, “Well…. it can only do THAT for three more days…. !”

    He hung in there and made a bundle in the ensuing days, buying his favorite blue chips on sale….

  22. ben22 says:


    thanks for the response

    this: “sure that’s why there is a stock market. BUT it’s not the only market, that part I am getting more wise to.”

    was really what I was curious about, I’m an avid student of socionomics.

  23. “…I am also pretty sure the company should have technically been shut down that week, based on reserve requirements…”

    that’s something that too, too, many like to gloss over ( in their 19 Oct 87 ‘retrospectives’ )

    “Wall St.” broke/was broken that day..

  24. [...] Barry Ritholtz comments on the largest one day drop in the Dow in history: Once upon a Monday dreary Traders waited worn and weary As they gazed upon news tickers warning of the day in store Foreign markets were imploding sending senses of foreboding With positions overloading sellers would be bringing more To dump upon a bloody floor October now had past its middle as investors faced this riddle With their Quotrons they would fiddle looking for The Bull of yore [...]