Financial Insights

Finding Uncle Lou: Black Monday 1987

Thirty years ago today I was sitting in a trading room watching the financial world throw up.  On Monday, October 19th, 1987 the stock market was on its way to dropping 22.6% which would be the equivalent of the Dow losing more than 5,200 points today.  That morning investors were still licking their wounds as the market had already shed 10% in the previous three trading days.

I didn’t have a lot of skin in the game at 26 years old, and only 3 months out of grad school, but I did have one client, my father.  So I searched for guidance from anyone in that trading room without a dazed look.

My pillar ended up being a 70ish-year-old veteran that we called Uncle Lou.  Lou had lived through the Great Depression and two World Wars.  His career at this point was coming into the office in order stay busy.  We called him Uncle Lou because calling him just Lou wasn’t enough.  He was famous for his brutal honesty and quirky optimism.  He had nothing to prove.  As a soldier in WWII, he was captured by the Germans.  He went into the prison camp at 155 pounds and by the time he scaled the razor fence and escaped, he was 118 pounds. He proceeded to run across the French farmland toward the Russian front, only to run back to the Germans because as he put it, “When I finally found the Russians, I realized the Germans were the better option”.

Lou’s way with clients was tough and rough but caring.  Arguing with one client about the strength of Exxon stock, I heard him yell through the phone, “For god’s sake Hal its Exxon, they have a fleet of ships the size of our Navy’s… you’ll be fine”.  And when explaining the safety of a particular investment property he schooled another friend with, “Its real estate Sheldon, you’re standing on it.  It’s not going anywhere!”  I was hoping that maybe he had something as profound for me on that day.

Uncle Lou didn’t disappoint.

“Will your dad’s life change if he can’t get to this money in the next year or so? If not, tell him to stay put” he said as he fingered through his Rolodex calling his clients that were still alive.  “Buy on the cannons and sell on the trumpets!” He kept repeating like an Army fight song.

The phrase “Buy on the cannons” is attributed to the legendary London banker Nathan Rothschild who said in 1810 that he liked to buy when the cannons were firing and sell when the trumpets were blowing.  The idea of buying when selling persists and selling when it is Camelot is easier said than done.  The phrase was most certainly the foundation of Warren Buffett’s favorite credo, “Be fearful when others are greedy and greedy when others are fearful.”

I didn’t have Warren by my side that Monday, I had Uncle Lou, and he looked and acted like he had been through this before.  Neither Lou nor anyone else was buying but his repeated “cannons” cheer kept reminding all of us that this too shall pass.  In the end, it took just over 15 months for the Dow to get back to its pre-crash level, and almost two years to the day on August 24, 1989, to reach a new closing high of 2,734.64.  Happily, dad stayed invested and I found more clients.

I learned some important things that day and the 30 years since;

  1. Don’t overlook the importance of experience. Find your Uncle Lou.
  2. You can’t time the market. And you don’t need to.
  3. Equity investing is for capital you don’t need today or two years from today.
  4. Have some cash ready for when the cannons start firing or to live off of during prolonged market downturns.
  5. Never underestimate the U.S. Economy.
  6. And if you have a disciplined financial plan and stay invested, you will be more successful than most people you know.

 

The foregoing content reflects the opinions of Advisors Capital Management, LLC and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful.

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