Quote of the Week: Buffett on Black Monday, October 19th 1987

This week marks the anniversary of the 1987 stock market crash, the largest single day percentage drop in history. The Dow Jones Industrial Average dropped 508 points, more than 22% (equivalent to a 3,200 point drop today, with the Dow at about 16,400).

Just how bad was the 1987 crash? If you missed our twitter posts from early this week, here are some screenshots from a few newscasts the night of October 19th, 1987:

cnn_image nightly_business_image5 nightly_business_image4 nightly_business_image3 nightly_business_image2 nightly_business_image cnn_image2

 

 

As you can expect, the news coverage of the day’s events didn’t help calm the markets:

 

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Overnight, investors went from wildly optimistic (the market was up 44% over the previous 7 months before the crash) to complete panic.

The press related the 1987 crash to 1929, the start of the great depression. Nightly news reports questioned whether investors should keep their money in the stock market. Mutual funds saw record outflows.

 

 

But as I researched the crash of 1987 more, what surprised me was the lack of commentary by some of the investors most effected by the crash:

1987_crash_biggest_losers

 

Now, I didn’t expect to find much on the 1987 crash from the Walton family, or Bill Gates. But I did think that I would be able to find something from Warren Buffett on the 1987 crash.

 

 

Warren Buffett is famous for his annual letters to his shareholders. I immediately turned to Buffett’s have to say in his 1987 letter to shareholders about the crash? Was he panicked over the sudden drop? Did he urge investors to stay calm? No, here is what he had to say about the 1987 crash, and our quote of the week:

 

 

“…”

 

 

Nothing.

 

How could someone like Buffett, who lives, eats and breathes stocks have nothing to say on the most memorable day in stock market history?

 

Because Buffett is worried about the long term outlooks of his business. A one day 20%+ drop in his holdings mean nothing to him.

 

And he was right, the crash of 1987, still the worst day of the stock market BY FAR, is but a blip 27 years later:

(click to enlarge)

chart_of_down_jones_industrial_average_1987_to_today

 

 

In fact, starting a year later Buffett took advantage of the lower prices and began building his position in Coca-Cola, one of his most successful ever.

 

 

Silence would have been the best thing for investors to hear on that day in 1987. Instead of panic, instead of fear, investors needed quiet.

 

So next time you worry about a bad day in the market, take heed of the investment greats like Buffett, and tune out the noise.

 

 

Our next post this week takes a look at how the 1987 crash affected long term investors. How long did it take to get your money back if you invested just before the drop? Check back tomorrow.

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