The Day the World Didn’t End

October 19 marked the 30th anniversary of the 1987 stock market crash.

On October 19 1987, Black Monday, the Dow Jones fell 508 points, a 1 day record even greater the great depression of 1929, wiping $800 billion off the price of shares on 1 day.

The next day in Australia, Black Tuesday, the All Ordinaries fell 515 points to 1514, a 25% drop. From the beginning of October to Nov 13 that year prices dropped 50.5%.

1987 is a distant memory and for many investors today, perhaps it didn’t affect them very much.  After all a 60 year old now approaching retirement was only 30, and probably more concerned about that months mortgage payment than investing in shares.

I was only 2 years into my career, still very new to the world of investing. I remember getting up in the middle of the night for some time afterwards to listen to the world news on the radio to see what was happening overseas because I had now learnt that in terms of share markets, when America sneezes Australia catches a cold.

Wall Street took 2 years to recover to its pre-crash high. Australia took 9.

Financial journalists assisted in the great panic, with blood curdling headlines and photos screaming of doom and great losses.

Yes there were losses – mainly by those who borrowed to buy shares –   the likes of Alan Bond and Christopher Skase dominated the business pages in the early 80’s with audacious takeovers fuelled by debt. They failed to survive financially much past the 1987 share crash.

But contrary to the shrieking of financial journalists, the world didn’t end. Business carried on. Share prices recovered, and the share market has proven to be the best place to have been invested in the last 30 years since.

An investor who had $100,000 invested in Australian shares in September 1987, before the crash, would have seen the price of his portfolio reduce to just over $50,000 in November. Their dividend in that year at 2.2% would have been $2,200.

Had they not panicked, and kept those shares AND re-invested their annual dividends the value of their portfolio today would be $936,000 and their 2017 dividends at 4.39% a touch over $41,000.

The vast majority of the gain has been because of the re-investing of dividends, NOT the price movement in the shares.

Disregard the mindless daily headlines because of that day’s price movement – headlines created by economic commentators who know the price of everything and the value of nothing.

Prices are volatile, they will change daily and sometimes crash a long way. But historically they have been positive by years end 81% of the time.

And as for those debt binging entrepreneurs of the 80’s, Paul Keating likes to stay ‘they left skid marks on the pathway to progress’.