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| "Stocks Plunge 508 Amid Panicky Selling; Percentage Decline Greater Than in 1929" - Wall Street Journal, 10/20/87 |
| The headlines of the newspapers and magazines following the 1987 Crash were dramatic. But even more dramatic was the difference from just a couple of months earlier. The market peaked on August 25th in 1987. This new all time high in the Dow was not even worthy of a mention on page one of the Wall Street Journal. The only mention of the stock market was buried in the "What's News" column: |
| "Stocks increased on the dollar's rise, with the Down Jones industrials up 25.35 points to a record 2722.42" - Wall Street Journal, 8/26/87 |
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| Another very interesting story in the Wall Street
Journal that day had this headline: "Brokers Begin Pushing Margin Loans - But Critics Say Borrowers Should Beware" - Wall Street Journal, 8/26/87 |
| Borrowing on margin is simple borrowing money against
the value of your stocks. This technique is often
employed to purchase additional shares of stock. This
works well enough as long as stocks keep going higher.
However this is a double edged sword. When stocks drop,
your losses are magnified and you can face "margin
calls" from your broker. Buying stocks on margin and
margin calls are often cited as major causes of the 1929
Crash. Interestingly enough, the "critics" in this article who were warning borrowers were not concerned about a market drop. This possibility was never even mentioned in the article. The warning was only that the margin loans might not be tax deductible under the new tax laws! In retrospect this article is a bit like the shoeshine boy asking for stock tips in 1929. This shows the type of crowd psychology at market tops. Almost everyone is convinced that the market can only go up. The idea of a bear market is entirely foreign. "It is different this time." But it wasn't different. The market started dropping. And some of the sentiment on Wall Street started to sour... |
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Home | Daytrading | Bull and Bear Markets | Walker Market Letter (free)
