30 years on from Black Monday: Time to Batten Down the Hatches?

17 Oct 2017

Justin Urquhart Stewart, Co-Founder and Head of Corporate Development

19 October marks 30 years since the Great Crash of 1987. Some markets though recovered relatively quickly. So what might you do if your investments suffer from such falls?

30 years ago on 16 October 1987, Britain was hit by a hurricane. Unlike Ophelia (the one impacting the weather for our islands this weekend) it was seen to cause havoc as no one expected it to intensify as it neared the South West coast. Ophelia, meanwhile, has been downgraded – although, as at the time of writing, it’s still had an awful impact where it makes landfall.

However, while most remember weatherman Michael Fish’s failed prediction of the night before, 18 people being tragically killed and Seven Oaks losing six of its famous oak trees, fewer will recall the details of the stockmarket crash the following Monday.

Starting in Hong Kong on 19 October, markets around the world plunged to such an extent that the day quickly earned the doom-laden moniker of Black Monday. The S&P 500 index, for example, plunged 20.5% while our own FTSE 100 dropped 10.8% - just in one day.

By the end of the month, headline stockmarkets in Australia, Canada, Hong Kong, Spain, the UK and the US had fallen 41.8%, 22.5%, 45.5%, 31%, 26.45% and 22.68% respectively. New Zealand's market was especially hard hit, dropping some 60% from its 1987 peak. But while that market took many years to recover, UK shares rebounded relatively quickly. In fact, if you look at the FTSE 100 year end to year end, Black Monday doesn’t even seem to have happened – markets actually ended up higher at the end of the year than at the beginning.

More financial crises have since come and gone, although none again caused the FTSE 100 to fall more than 10% in value in a single day. The start of the Global Financial Crisis, for example, saw the worst day for the FTSE 100 (10 October 2008) and the S&P 500 (on 15 October 2008), each notching up falls of about 9%.

However, while Black Monday saw a worse one-off fall, the more recent Global Financial Crisis had a more devastating effect on financial markets. Here, cumulative losses were around 50% of the S&P 500 and around 40% of FTSE 100 between October 2007 and March 2009.

Again though, markets did recover. And they can sometimes actually recover quite quickly. So after the Vote to Leave spooked investors, the FTSE 100 was initially off by over 8%, but it started to rally that same day and ended down just over 2% at the close.

Remembering these crises, however, is a useful exercise in that they are timely reminders that things can and will go wrong. This is why we always emphasise investing is for the long term. After all, any savings you’ll be putting aside for your pension may need to last some 30+ years so spending time in the market makes sense. Yes, there will always be a few months of moaning and short term scares, but you should really try to keep a long term focus. The longer the better as you’ll then benefit the most from the magic of compounding i.e. where your investment gains may earn profits on top of any potential profits on your original investment too.

That also does mean though that you need the stomach for the inevitable falls. And here you can take heart – some of the best periods in stockmarket performance have followed literally just days on from the worst. So, set a steely gaze at your time horizon to help you avoid any bouts of seasickness and maintain your equilibrium as far as your finances are concerned.

In addition, you can help weather such storms through a well-designed portfolio, a financial version of a well-built ship, that helps tide you over any troughs and enables you to tack through the troubles to the calmer waters beyond.

Now, if all I’ve left you wondering about is why there are so many seafaring references here, I only need to flag that one of my main worries about my pending pensioned years is that I increasingly seem to be modelling my whiskers on Captain Birdseye!

Justin Urquhart Stewart
Co Founder and Head of Corporate Development

Seven Investment Management LLP is authorised and regulated by the Financial Conduct Authority. Member of the London Stock Exchange. Registered office: 55 Bishopsgate, London EC2N 3AS. Registered in England and Wales No. OC378740.

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The value of your investments and the income from them may go down as well as up, and you could get back less than you invested.
The value of your investments and the income from them may go down as well as up, and you could get back less than you invested.

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