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Quote of the Day

“…the hedge fund known as “Long Term Capital Management” collapsed last fall through overconfidence in its highly leveraged methods, despite I.Q.’s of its principals that must have averaged 160. Smart people aren’t exempt from professional disasters from overconfidence. Often, they just run aground in the more difficult voyages they choose, relying on their self-appraisals that they have superior talents and methods.”

– Charlie Munger in a speech to the Foundation Financial Officers Group, October 14th, 1998.

October 15th – This Day in Stock Market History

October 15th, 1907 – The panic of 1907 begins as the scheme to corner the market in United Copper Company shares by Frederick Augustus Heinze collapses.

Shares of United Copper fall from 60 to 10, instantly destroying the financial empire of Heinze and his partner Charles Morse.

Investors knew the partners had used depository institutions under their control to help finance their attempt, which led to a run on Mercantile National Bank.

The panic led the public to further withdrawal assets from brokerage houses and banks in one of the most severe financial panics of its time. Panic would remain on Wall Street through October 24th, when J.P Morgan would help deposit $25 million in various New York banks to keep them solvent.

Source: It Was A Very Good Year

New York Times coverage of United Copper's fall

October 15th, 1998 –  Alan Greenspan and the Federal Reserve cut interest rates for the second time in an attempt to help the financial system weather the Russian debt crisis.

The crisis has led to a sharp decline in U.S. stock prices. After the rate cut, the Dow Jones Industrial Average rallies 4%. The rally would put in a permanent bottom for the Dow at around 7700 after falling from its highs of 9100 just 6 months before. The Russian Debt crisis is over, but it has one notable victim – Long Term Capital Management, which has lost $5 billion in just over 6 months.

Source: When Genius Failed

Front page New York Times coverage of the Federal Reserve's rate cut on October 15th 1998
Front page New York Times coverage of the Federal Reserve’s rate cut on October 15th 1998

October 15th, 2008 – As the 2008 – 2009 financial crisis continues, stocks stage their worst percentage decline since 1987 and second largest point drop ever.

On this day in 2008, the Dow Jones Industrial Average dropped 733 points (second only to September 24th, 2008), a 7.78% decline.

The markets had been on a roller coaster that week; Monday October 13th the Dow had jumped more than 11%, but were still down more than 30% from the 2007 highs.

Chart from macrotrends.net
Chart from macrotrends.net

October 15th, 2014 – A “Flash crash” in US Treasury leads to the most volatile day in U.S. Treasury markets in 50 years.

The yield on the US 10-year note fell 34 basis points — or 0.34% — from 2.2% to as low as 1.86% in a matter of just minutes. The sharp turn lower began at 9:34 am, and yields had recovered by 9:45.

U.S. Treasury flash crash

The U.S. Treasury would commission a study to investigate the cause of the flash crash. You can read the Treasury’s report here.

Blame for the flash crash is centered around a rise in electronic and algorithmic trading combined with a change in the market structure that affected liquidity of the market.

Best October 15th in Dow Jones Industrial Average History

2002  – Up 4.80%, 378.28 points.

Worst October 15th in Dow Jones Industrial Average History

2008 – Down 7.87%, 733.08 points.

Read of the Day

Our quote of the day comes from a speech given by Charlie Munger in 1999.

An article summarizing the speech, titled “Master’s Class: Berkshire Hathaway’s vice chairman shreds the conventional wisdom on foundation investing” can be found here, starting on page 77

<– Go To Previous Day: October 14th, 1987: Black Monday is 5 days away, but cracks are emerging – The Dow has its largest point decline in history (at the time).

Go To Next Day: October 16th, 1923 – Walt Disney sells his first cartoon for $1,500. –>