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Quote of the Day

 

A short quiz: If you plan to eat hamburgers throughout your life and are not a cattle producer, should you wish for higher or lower prices for beef? Likewise, if you are going to buy a car from time to time but are not an auto manufacturer, should you prefer higher or lower car prices? These questions, of course, answer themselves.

But now for the final exam: If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. In effect, they rejoice because prices have risen for the “hamburgers” they will soon be buying. This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.

 

-Warren Buffett, in his 1997 Letter to Shareholders

His comments were made while the ‘Asian Flu’ crisis, which began on this day in 1997, was still unfolding. The crisis would see international stock markets fall 75%+, and be responsible for trigger stock market circuit breakers in the United States for the first time in history.

 

For more quotes from Buffett’s shareholder letters, visit our page here: 41 Years of Berkshire and Buffett Quotes – Our Favorite Quotes from The Berkshire Hathaway Shareholder Letters

 

 

February 5th – This Day in Stock Market History

 

February 5th, 1997 – The first serious sign of trouble in the Asian economies as Somprasong Land announced it was unable to make a $3.1 million interest payment.

The move led many other businesses who were holding back signs of struggling to come forward to announce financial trouble. The declaration would be the start of a major world-wide financial crisis now known as the “Asian Flu” where Asia would see hyperinflation, and U.S. market circuit breakers would trip for the first time in history due to volatility on October 27th, 1997.

 

While the U.S and other developed stock markets were certainly impacted, the worst of the crisis was focused on Asia, where Thailand, Indonesia, the Philippians, Malaysia, and South Korea would all see their currencies fall 35-40% from June 1997 to June 1998.

These countries stock markets would fare even worse. Most notably, Thailand’s main stock market index would fall 75% during the crisis.

The crisis would also spill over into Russia later in 1998, and be responsible for the Russian debt crisis of 1998, which caused Russia to default on its debt, and brought down Long Term Capital Management.

 

 

February 5th, 2018 – The Dow Jones Industrial Average falls 1175 points, its worst point loss in history. At its low point in the day the Dow was down as much as 1,597 points.

dow chart february 5th 2018Source for image: CNN Money

 

The decline would come in the middle of a bout with volatility that began in early 2018 and that marked the top of the U.S. stock market for much of the year. Stocks saw 3 notable declines in February of 2018; February 2nd, when the Dow dropped 665 points (2.54%), the drop on this day, and a drop of 1,032 points (4.2%) which occurred 3 days later on February 8th, 2018.

It would take the stock markets about 7 months to recover to their highs made in early 2018:

djia_2018_chart

 

 

 

Although the large point milestones make for great headlines, the day was hardly catastrophic in percentage terms. The decline was a 4.6% decline in the index, not even the 25th worst day in stock market history.

Here’s how CNBC covered the day:

And,

From CNBC.


 

Best February 5th in Dow Jones Industrial Average History

1917 – Up 2.29%, 2.06 points.

 

Worst February 5th in Dow Jones Industrial Average History

2018 – Down 4.60%, 1,175.21 points.

 

 

Read of the Day

In 1997 Tim Geithner, most well known for his role as Secretary of the Treasury in 2009-2013, had a different position with the Treasury. He writes about his experience fighting the ‘Asian flu’ in 1997, and the lessons investors should take from it in his memoir, Stress Test: Reflections on Financial Crises

 

 

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