Remembering Black Monday

25 years ago today, much of southern England was waking up to the damage caused by the Great Storm of 1987.

This storm was responsible for the deaths of at least 18 people in England, with winds of hurricane force bringing down an estimated 15 millions trees.

As an eight year old, I managed to sleep through the storm, waking up the next morning to see an oak tree where the roof of the house next door should have been.

What followed the storm was Black Monday, as stock markets crashed around the world.

Travelling like a storm, the crash started in Hong Kong and spread to Europe before reaching the United States. Within the space of ten days, the UK stock market had lost 26.45%.

Hong Kong was hit even harder, losing 45.5% by the end of October 1987. The US markets fell by 22.68%.

Black Monday was blamed on several causes, including program trading, overvaluation, illiquidity, and market psychology.

At the time, Black Monday was seen as almost apocalyptic for investors. Looking back at investment charts now, it appears as a mere blip.

Those investors who had the courage to stick to their original decisions saw their investments recover in value within two years.

Some new research from JP Morgan Asset Management has shown that £100 invested in a selection of their investment trusts on 30th September 1987 show gains of at least 400% on a total return basis (with income reinvested) during the past 25 years.

Investing for the long-term usually makes sense.

What can feel like a major stock market movement on a daily, weekly or monthly basis is often insignificant when viewed over a period of years, over a decade or longer.

Most investment objectives tend to be long-term. In fact, if your financial objectives are short-term then it can often represent too much risk to invest money.

We will probably get another Black Monday type event at some point in the future. Nobody can accurately predict when it will occur, how severe it might be or for how long it would last. For these reasons, investing and staying invested makes real sense.

Photo credit: Flickr/dbaron