30 years ago this month, investors were enjoying one of the strongest bull markets in history. The Dow was up more than 40% for the year, to a record high of around 2,750. Things began to get a bit dicey after that, with a drop of 9% over the next few weeks, followed by a gain of 7% at the end of September. On October 19, the market crashed, losing 508 points in a single trading session. That 22.6% loss remains the worst day in history for domestic stocks, and many writers predicted another worldwide depression was imminent. It was not.
Fortunately cable television was in its infancy, and 24-hour, non-stop news was not available to most people. It was before electronic, institutional block trading. It was before instant stock price quotes, as investors relied on a ticker tape machine to see the prices at which stocks were trading. The day of the crash, the volume of trading was so great that the ticker tape was more than two hours late in reporting prices.
PDS was still in its infancy in 1987, and we had just begun a relationship with a brokerage firm to invest our clients’ money. What an initiation! Going back to 1987, despite that huge, one-day loss, the stock market finished the year with a small gain. That is perhaps the bigger story, one that is almost forgotten. Folks who did not panic and bail out did not lose anything when all the dust had settled. Think about that for a moment. Thankfully, the years since have not had anything so dramatic.
PDS has been through any number of difficult market periods since that day in 1987. Through it all, we have learned the importance of taking emotion out of investment decisions. Some clients might call it handholding, and some have jokingly described it as dial-a-prayer. The fact is that PDS has helped to temper our clients’ emotional reaction to events for more than 30 years. We now have a lot of technology that did not exist in 1987, but technology cannot replace the personal relationships that have helped our clients reach their life goals.
While our crystal ball cannot tell us what the next 30 years will look like, we know that meaningful relationships with our clients (some into second and even third generations), where people are more important than numbers on a monthly statement, will continue to guide us as they have for the last 30 years. Moreover, remember all of this the next time the news describes a half-percent drop as a huge selloff.