AAII Survey: 30 Years Later, Most Individual Investors Believe Another “Black Monday” is Possible


The following is an excerpt of my weekly commentary for AAII’s Stock Superstars Report from October 20, 2017.

As you may have heard, yesterday (Thursday) marked the 30th anniversary of “Black Monday,” the biggest one-day stock market decline in Wall Street history.

These days for many, myself included, Black Monday takes a backseat to the bear market of the “Great Recession” of 2007 to 2009. While Black Monday was a one-day shock that saw the S&P 500 drop 20.5% and the Dow Jones industrial average fall 22.6%, between October 2007 and March 2009, the S&P 500 lost 56.8% and the Dow fell 54.1%.

With so many publications dipping into their archives and investors and traders discussing “where they were” on October 19, 1987, I dug into AAII’s archives to see how the association covered “the October crash” of 1987.

Given editorial deadlines and required lead times, and the fact that in 1987 there was no December AAII Journal, it wasn’t until the January 1988 issue that then-editor Maria Crawford Scott commented on the October happenings. It is not surprising to me that many of the things Crawford Scott said in January 1988 still hold true for AAII and individual investors in October 2017.

Here are excerpts of Maria Crawford Scott’s “Editor’s Note” from the January 1988 issue of the AAII Journal:

“The October crash quickly overshadowed many investment articles written previously—including several in the November AAII Journal. Several AAII members wrote to suggest that the November issue should have contained articles explaining what investors should do in light of the October stock market performance.
“…even if we could have changed the issue, we would have likely made only brief mention of the October declines. Why?
“First, our theme is educational, which does not lend itself to a quick, off-the-top-of-someone’s-head analysis of what went wrong. Not only are these analyses not particularly educational, they may well be wrong.
“Second, our approach is long-term, which does not include major portfolio revisions in reaction to a single event. In fact, we think most of our members followed our approach, based on their comments and the letters we have received.
“Finally, we diversify—our articles cover areas other than just the stock market.
“Most of our investment articles apply equally in bull as well as bear markets. We leave the up-to-the-minute investment news and analysis to more frequent publications, such as The Wall Street Journal, Investor’s [Business] Daily and Barron’s.”

No matter if it is 1988 or 2017, here are some key takeaways:

• Don’t make knee-jerk investment decisions based on singular events. The S&P 500 never again traded lower than the intraday low on October 20, which was an up-day for the S&P even though the intraday low was lower than that of the 19th.

• Have a long-term perspective. If you had gotten out of the market on October 20, you would have sold at the bottom. Although the S&P 500 didn’t get back to its October 18, 1987, levels until January of 1989, the market did not fall any further following Black Monday. As an investor, patience and discipline are key when the market takes a hit. There is one caveat: if there is money you will need in the next three to five years, it shouldn’t be invested in the stock market to protect against short-term downside volatility.

•  Diversify. Diversification aims to maximize return by investing in different areas that would each react differently to the same event. Although it does not guarantee protection against loss, diversification is an important component of reaching long-range financial goals while minimizing risk.

AAII Weekly Survey Question

Thirty years later, there has been a slew of articles from investors and traders who lived through Black Monday 1987 saying that another Black Monday could happen again, despite all of the circuit breakers and other safety mechanisms that were put in place in its aftermath.

To see where our readers stand, last week’s survey question asked:

Do you think a “Black Monday” crash could occur again?

Here are the results:

With 2,559 responses through 6 a.m. (Central) on Sunday, October 29, the majority of AAII readers feel that another “Black Monday” even could take place. Only 15% feel that another Black Monday isn’t possible while the remaining 11% aren’t sure.

Weekly Special Question

I am of the opinion that if you don’t fail in life, you aren’t taking enough risk. Our failures serve as valuable learning opportunities.

To see what our readers learned in the aftermath of Black Monday, last week’s special open-ended question asked:

If you were investing in October of 1987, what were the biggest lessons you learned in the aftermath of Black Monday?

Of the 630 responses we received, an overwhelming number said that the biggest lesson they learned from Black Monday was to not panic and stay the course (over 67%). Another 20% said they learned to have cash on hand to take advantage of the buying opportunities presented by a market downturn. Another group (around 12%) said they learned the importance of diversification and asset allocation following Black Monday.

Here is a sampling of last week’s responses to the special question:

  • “(1) Try not to panic (2) Diversify (3) Take advantage of the situation by purchasing quality stocks at reduced rates.”
  • “Go long when others are in panic.”
  • “Don’t sell right after the downturn but wait to see if it will recover. The market was back to normal in a reasonable amount of time.”
  • “Have cash to invest!”
  • “Asset allocation is a must!”
  • “Don’t stay out of the market too long!”
  • “…one thing that most people don’t realize today is that 1987 was an up year! If you were invested on January 1, 1987, just ignored all of the October turmoil, you were up on December 31st of that year!”
  • “Learn as much as possible about the stock market myself and not to depend on financial advisers.”
  • “That it would be the worst time to get out of the market even though you had just experienced a devastating loss to your portfolio.”
  • “The biggest lesson I learned was to ignore the short-term ups & downs and focus on the long-term.”

Everybody has an opinion! Why not give us yours? Participate in our weekly member poll, updated every Monday, and see the results online at www.aaii.com/memberquestion.


2 Replies to “AAII Survey: 30 Years Later, Most Individual Investors Believe Another “Black Monday” is Possible”

  1. Pingback: AAII Blog
  2. I am a simple Carpenter by trade. My theory has been buy something no one else wants, sell it when everyone wants it. During the realestate crash of 2008, I purchased 2,000 trusts spending $450,000. The market recovered and I would sell houses or receive mortgage payments and still do as a residual. Food, clothing and shelter- the basic needs. Nothing fancy, nothing complicated, simplicity. I find the stock market complicated because this one has the answer [send him money for his “one of a kind” knowledge and news letter, another writes a book with the knowledge to make you a millionaire overnight etc. I enjoy Mr. Buffet, been around before some of the others were even thought of being born. Buffet has seen it all over his lifetime. Not fads, real knowledge. I was raised in a public housing place, highland Dwellings in SE District of Columbia. Joined the Marine Corps [that was a learning experience], married had 9 children who had 35 children who had 17, last one being 2 weeks old. Do I spend all that money? No. I have food, clothing and shelter. Not a 5 mil house just a plain 3 br home. Anyhow, I’m not bragging, just thankful for what God has provided to a public housing guy. Thank you for listening


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