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Quote of the Day

“Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.”

Warren Buffett: The New York Times, October 16, 2008.

No doubt the week that ended October 10th, 2008 was weighing heavily on Buffett’s mind as he wrote this quote for an Op-Ed that would appear in the New York Times a week later. The market had just suffered its worst week ever, capped off with October 10th, 2008 which became the Dow’s most volatile day in history. See our “This Day in Stock Market History” below.

Quotes like this offer a reminder that as an investor, your focus is on the long term. Day to day, month to month and even year to year fluctuations in the stock market should be seen as merely noise and should not distract you from your long term objectives.

October 10th – This Day in Stock Market History

October 10th, 1957 – The Dow Jones Industrial Average falls 9.69 points, or 2.15%, the largest drop since Eisenhower’s heart attack in 1955.

News outlets attribute the drop to continued fear of the Soviet Union’s launch of Sputnik on October 4th. Even 1 week after the launch, sputnik was still front page news on the New York Times:

October 10th, 2008 – The Dow Jones Industrial Average has its most volatile day in history (at the time), swinging 1019 points during the day – a fitting end to what would be its worst week in history for the stock market.

At one point, the Dow Jones Industrial Average was down 8.1%, nearly 700 points. The Dow would close “just” 128 points, or 1.49% lower.

Front page of the Wall Street Journal covering the worst week in U.S. stock market history
Front page of the Wall Street Journal on October 11th covering the worst week in U.S. stock market history.

This day in 2008 the U.S. stock market was in the depths of the great recession.

Lehman Brothers had declared bankruptcy (at the time, the largest in U.S. history) just less than 3 weeks prior, and panic was still in the air.

The Dow Jones Industrial Average opened the week around 10,324 and would fall 3.5% on October 6th, 5.1% on October 7th, 2% on October 8th, and 7.3% on October 9th.

Then, the Dow would open October 10th at 8,568 and would fall nearly 700 points to a low of 7,882. Then, the market caught a strong bid and rose 1,019, before settling at a close of 8,451.

At the lows on this day, the market would be down nearly 25% for the week, making it the worst week in stock market history.

Best October 10th in Dow Jones Industrial Average History

2002 – Up 3.40%, 247.68 points

Worst October 10th in Dow Jones Industrial Average History

1932 – Down 4.41%, 2.70 points.

Read of the Day

From Tim Geithner’s book, Stress Test

“The week of October 6 was the US stock markets worst a week since 1933. The S&P 500 dropped 18%. The “fear index” a measure of market volatility, hit an all-time high, while the spread reflecting stress in inter-bank lending also set a new record, four times it’s a level before Lehman. Morgan Stanley return to the brink, as rumors swirled that its deal with Mitsubishi might fall through; it stock price plunged wants credit default swaps sword. And AIG was burning through its $85 billion bridge loan so fast that we had to set up an additional $37.8 billion program… Private credit was now virtually unavailable. The financial system was increasingly unable to play its most basic role in the economy: facilitating the flow of money from those who wanted to lend to those who wanted to invest or consume. The run on money market funds after Lehman, followed by the broader run on the baking system that consumed WaMu and Wachovia, had spilled into the unsecured commercial paper market where businesses with strong credit histories could raise money to finance their day-to-day operations.”

The book offers an amazingly detailed view of the behind the scenes action that took place during the 2008-2009 great recession. The book serves as a great reminder of just how harrowing those days really were.

One of the main reasons I keep up this collection of Wall Street history on BegintoInvest is the same reason that I love books like this. It is a reminder of the tough times, the times of sheer panic that make long term investing so difficult. I think knowing the details of the events like those that took place in 2008 and 2009 makes it easy to ignore 99% of the “normal” headlines that appear every day that distract investors from their long term goals. Tim Geithner’s book is one that I have come back to many times to relive those moments.

<– Go To Previous Day: October 9th, 2002 – After a 78% decline, the Nasdaq reaches its tech bubble bottom.

Go To Next Day: October 11th, 1982 – The Dow Jones Industrial Average closes above 1,000 for the first time in nearly a decade, finally recovering from the brutal 1973-1974 recession. –>