You won’t hear many people refer to the stock market crash of Oct. 19, 1987, as a “great day.”
But for investor Larry Benzel, that was exactly the case 25 years ago as he took advantage of the market’s inexplicable free-fall to buy bargain stocks.
Between 1982 and 1987, stocks had been on a huge bull run, and by August 1987 the market was setting new highs almost every day, Benzel said. At the time, he was in the Navy and working on an aircraft carrier in Virginia, when he was eating lunch and listening to people all around him talk about the stock market.
A story immediately popped to his mind about a well-known financier, who right before the 1929 stock market crash sold his stocks after a shoeshine worker started giving him stock tips.
Benzel, likewise, felt as if he were surrounded by people who didn’t know anything about the market, got up from his lunch, walked to his office, called his stockbroker, Jim Eagleton, and proceeded to sell about three-quarters of his portfolio – just weeks before the 1987 crash.
Benzel today is a senior naval science instructor at Tulsa Central High School. His intuitive reaction in 1987 was fortunate, but for many others, that day was not so lucky.
The Dow Jones industrial average had gone straight up the first two-thirds of the year, before closing at a high of 2,722 on Aug. 25, 1987.
Then on Oct. 16, 1987, the Dow Jones industrial average dropped 4 percent to close at 2,246. On the following Monday, the Dow cratered, falling 508 points, or about 23 percent, to close at 1,738. The event, the largest one-day percentage decline in Dow history, became known as Black Monday.
James “Skip” Nichols, president of Financial Planning Resources Inc. in Tulsa, remembers how he and another worker felt almost numb from shock when the market plummeted 25 years ago. It was a day of panic, he said.
“We could just not believe what was going on. We were just dumbfounded. It totally caught us off guard,” he said.
At the time of the crash, he had three relatively new clients, including a young divorcee and a man who had worked for a charity who had invested his life savings. Within one day, all three of those clients saw a third of their investments wiped out.
“It left me just aghast. What do you say to these people? How do you get them to stay?” Nichols said.
People acted as if the world were ending, and it was difficult to keep them from making irrational decisions and selling their stock in great companies, Nichols said. Two of those new clients bailed, while another chose to stay within the market and within 20 months his account had totally returned to where it was before the decline.
Many financial advisers, likewise, got out of the business. “Luckily, I had bought into the long-term philosophy of what I call ‘staying on the train,’ ” Nichols said. “One thing that helped me is that I kept focusing on the fact that I didn’t own the stock market, but I owned great American companies…. They were still in business, and they were still making the same products.”
Tom Warburton, who today is principal of Warburton Capital Management, was 37 years old and the owner of a Coffeyville, Kan., company that repaired valves for oil refineries and chemical plants throughout the Midwest when the crash hit.
“I remember how I woke up the next day, and about 20 percent or 25 percent of the money in my 401(k) and investment accounts had evaporated. It was shocking,” Warburton said. “There was nothing like that had ever happened to me before.”
But he saw the crash as an opportunity to buy stocks that were irrationally on sale.
Jim Eagleton, senior financial adviser with Wells Fargo Advisors Financial Network, can still remember vividly how the office was completely empty by 3 p.m. that day.
“Nobody knew why it occurred or what it meant, and all of the brokers just left. It was really strange. I remember working until 10 that night, calling every client that I could get a hold of, telling them that there was no good reason for the … decline.”
It was simply a panic, he said.
Asked if the stock market could crash again like it did in 1987, Eagleton replied, “Absolutely.”
He added, “By definition, you can’t predict a surprise … I don’t know if the next surprise is going to be a meltdown or melt up. In the short run the market moves randomly and unpredictably.”
Benzel remembers calling Eagleton at 9 p.m. after the market’s plummet and placing orders for several stocks, including Aflac, Home Depot, Wal-Mart Stores Inc. and General Electric.
He had learned early on from his father not to follow the crowd when it comes to stock investing. And Benzel, who began investing at age 12 when he bought his first 25 shares of stock for about $300, had learned the importance of selling high and buying low.
“In terms of setting me up for a great portfolio at bargain-basement prices, that day was just spectacular,” he said.
Stocks: Then and now
A look at five companies that weathered the 1987 market crash.
*Historial stock prices not adjusted for splits and dividends Source: Bloomberg, Yahoo.
Original Print Headline: Return to scene of crash
Laurie Winslow 918-581-8466