20th October 1987 probably doesn’t mean a lot to anyone who wasn’t in the market – but for those who were - it was a day no one ever forgets...

• The actual day in Australia was Tuesday 20^th October 1987 (Monday 19^th October in the US). Today is Tuesday & the day it happened was a Tuesday (this week). So what happened..? 

Leading into that day...

• So it was 30 years ago that all those in the Aussie market went home on Monday night, the 19^th of October 1987 & wondered what the Dow would do that night, it had fallen -10.4% over the previous 3 days leading into the weekend.
• Here in Australia - we were only down about -5.5% over the previous 3 days (but market had been hammered -3.7% on the day before the crash) - but we all went to bed wondering if it’d continue down or as we all hoped & expected - would bounce back hard that night ??
• I had bought some $22 Newscorp call options the previous day (on Monday as News had fallen -7.8% to $20 that Monday from $24 the previous week) as this was the greatest bull market many could remember – this was surely just a small correction – nothing to really worry about – everyone else was buying…

The morning of the crash... 

• Well, having only been on the insto dealing desk at Ord Minnett for 10 mths (after a stint in London from 1985 to Dec 1986) I was unsure what to expect (young, naïve & gullible back then). So I woke up at 6.00am & checked to see the Dow was down -200 points, had a shower & put on my 3 piece suit (yes in the late 1980’s there were plenty wearing those shocking things) & by the time I had buttoned up my inner piece the Dow was down -300 pts.
• I got the bus to work & saw the Dow was then down -400 pts& when mkt closed that day at 8.00am Sydney time that Tuesday 20^thOctober 1987 (Monday 19^thOctober in the US) the Dow had collapsed -508 points or -22.6% to 1738…
• To put that into perspective – it’s like seeing the Dow today drop -5,162 points…
• I did read recently about a broker talking about making 4am phone calls due to the crash – BUT at 4am the Dow wasn’t down -500 points – at that stage the Dow was only down around -200 points (it was only12pm in New York) - so at that stage it was bad - but got really ugly from 6am to 8am when Dow went off a cliff.. 

That morning on the insto dealing desk ...

• Everyone on the desk was in shock – no one had ever seen - nor even heard of this happening before - it was unprecedented (the Oct 1929 crash day was about -10%)
• The bloke sitting next to me – Bruce Skelton (who – at the time – was much older & more experienced than me) – looked sick & stunned - like everyone else on the desk …
• A lot happened that day, it was ugly & unprecedented.

Buy gold was the call ...

• Sorry I probably got all the gold bulls excited with that headline... 
• I remember our economist running in & saying “buy gold” .. “buy gold stocks” - as gold was going to soar.
• He & another guy from research ran to the bank to BUY gold... 
• Gold looked good - on the day it rose +US$10 or +2.1%  to US$481.70 ...

So he was right ... ???

• No .... there is another dynamic that goes on in these situations...
• When the stock market opened everything got smoked –except the gold stocks that held up initially - since gold was trading up +2%.. 
• But as a lesson that is universal & repeats again & again (and we saw it in the GFC as well) – when people are losing money in one stock or sector & another one is holding up or giving them a profit – they will hit it as hard as they can in an attempt to lock in cash. 
• When you need cash you will sell anything that is liquid & better if holding up (as it will eventually fall when everyone else picks up on this)
• Also, these sectors were the ones everyone thought was a good place to invest in – so they also provided a huge help to many - who sold them early before they too were clobbered.
• For the record (and I know the present gold bulls will really hate this) ... 

BUT... 

• Gold that day was up +2.5% BUT the Australian Gold Index closed down -28%....

... LIQUIDITY

• Never underestimate how important liquidity is when markets are falling. 
• In the GFC the stock markets across the globe were smashed as they were “liquid” while other asset classes were not (many had frozen up) 
• That was a big reason we saw the falls of -20% in world stockmarkets after Lehman’s’ – simply because they were “liquid” and the stock market could deliver cash in 3 days – while many other asset classes were all seller no buyer – with no way to even get your cash out...

Back to 1987...

• Newscorp that day closed at $13.00 down -35% (and were trading at $9.60 8 days later) so that was an“expire worthless” option notice coming my way .. (funnily enough that was not the only one I have received)  
• I’d gone from (potential) hero to zero in just 8 days (a lesson most I suspect have also experienced)!!

So after a tough day, the All Ordinaries closed down -532 points or -25% to 1596, value that day was a RECORD at $686m.

The immediate aftermath 

• In the months that followed the crash things did get tough as clients traded less. 
• The boss of Ord Minnett - Giles  Kyrger – who had employed myself & 2 others as “graduate trainees” in 1986 – called me & a guy named Rob Keldoulis into his office. 
• We looked at each other – where was Alex?
• Giles then said that in this job we “throw you into the deep end & you either sink or you swim – Alex sunk – you guys are still swimming – so get back out there to your desks.”    
• There was no lovely HR protection back then – it was sink or swim – no second chances.
• The effects of the crash were felt across broking & later the economy for years to come in Australia (due to the high number of spivvy companies that littered our Top 20).
• Every year from 1987 to 1990 – I got a  really special “Bonus” – the bonus was: “ Richard you still have your job”!! 

The Coppo Report

This article is an excerpt from The Coppo Report contributed to Livewire by Richard Coppleson, Director - Institutional Sales and Trading, Bell Potter. You can find out more here.

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