FOUNDER BUYS STOCKS AFTER BLACK MONDAY CRASH
I was working for an investment bank on “Black Monday” in 1987 when the stock market crashed and fell 20% in a single day – a record drop.
Everyone was literally freaking out.
But the day after the crash, the founder of the firm, who was in his late 80s, walked into the office and bought millions of dollars worth of stock.
He had seen America bounce back from numerous other crises in his lifetime, and he knew this would be no exception – despite all of the “gloom and doom” talk.
CRISES AMERICA HAS OVERCOME
America always seems to overcome enormous crises no matter how serious they might seem at first.
And, here are just a few examples of crises that truly seemed insurmountable:
- The Civil War: It devastated the economy, created enormous rifts, and resulted in more deaths of U.S. Soldiers than WWI and WWII combined.
- The Spanish Flu: As many as 700,000 people died at a time when the U.S. population was only 1/3 of today’s.
- The Great Depression: 25% unemployment and years of misery.
- Pearl Harbor: It happened when the American Military was weaker than almost all of its future allies and combatants. By 1944, America reigned supreme.
- WWII Debt: In 1947, total American debt exceeded the size of our economy (like today’s debt), greatly worrying many Americans. It was never an issue.
- WWII Soldiers Coming Home: Many feared a return of the Great Depression when the war ended and the soldiers returned. There was an adjustment period but America thrived.
- 1960s Unrest and Assassinations: Many people honestly believed the country was falling apart with no hope of salvation.
- 1970s Inflation: This disrupted lives and the economy like nothing else since the depression.
Other very worrisome concerns we had that never seemed to come about included: (1) an uncontrollable population explosion – late 1960s; (2) oil supplies running out – 1970s; (3) a returning ice age – 1970s; (4) acid rain – late 1970s and early 1980s; (5) ozone layer disappearing – 1970s; and (6) nuclear Armageddon – 1950s on.
Last year when the COVID crisis surfaced, I wrote numerous blogs with a similar message trying to encourage everyone not to worry too much.
COVID was very serious and I knew it, but I also had great faith in the ability of our economy to bounce back, focusing particularly on the housing market.
In response, I received numerous emails from concerned Realtors telling me that they thought I was conveying too much optimism in regard to the housing market.
I of course had no idea it would be as strong as it is now, but I was confident that we would not see a COVID-crash.
PURPOSE OF THIS BLOG
There are two purposes for this blog:
- A reminder to remain more relaxed the next time we face a crisis that might “end the world…” We all might be wise to remember that the media needs to scare the bejeebers out of all of us to sell more papers, to garner more viewers, and to get more clicks. We might also remember that politicians also like to exaggerate concerns on occasion too b/c it enables them to justify more spending and government expansion. So, hopefully this blog will help readers remain more relaxed when the next crisis comes, and it will.
- Investment Opportunities. This is the important reminder b/c perceived crises often created tremendous investment opportunities, as markets almost always seem to overreact to the “doom and gloom” reporting. I follow numerous investment gurus and forums from all sides, and I was amazed by their confidence in the U.S. economy’s ability to bounce back and by how savvy so many investors were. Not only did many of them predict the housing market strength and the stock market come-back (as they loaded up on both asset classes after they softened in response to COVID), but many also made killings last year investing in commodities such as copper and uranium too. The above story about the 1987 stock market crash is another example. And, finally, I received two other much more specific (micro) examples in a newsletter recently where the writer discussed his very successful bets on tax-free airport bonds after concerns were overstated. In 1995, he bought Denver Airport bonds after news surfaced that the baggage claim didn’t work and the price of the bonds plummeted. The writer, however, knew there was no way authorities would not fix the problem after already having committed billions to the airport already. The writer also bought Reagan National Airport bonds after 9/11 when there was talk that the airport might have to close indefinitely and bond prices dropped. The airport opened up again after several weeks, and the writer again did very well.
Note: I am not advocating “exploiting” crises or taking advantage of anyone; I am merely pointing out that a more pragmatic perspective and confidence in America can often illuminate opportunities
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