Black Monday: Have we learnt anything 30 years on?

It’s 30 years since Black Monday, and I still remember the weekend before it vividly. Nerves were beginning to jangle: we had the mercurial warning of the Great Storm on the Friday, and we knew a stockmarket storm would be blowing in from the US too. So after listening to constant chainsaws (mostly not working) cutting up the fallen trees after the storm, it’s fair to say we were all a little on edge.

The brave new world after Big Bang had just gone bust in the US on the Friday before and we began to fret, waiting for our market to open. On the Monday morning, my TV screen brought me the BBC’s Nicholas Witchell and a lightbulb — the TV studios clearly having become “no go” zones due to the storms. It really did feel apocalyptic. The morning started with Hong Kong beginning the decline. As London opened, I gathered people around a screen to watch a live crash — a 20 per cent fall was expected and there were even fears that the market would fall further. Some were even forecasting another 1929 scenario.

Fears only just foreran reality. In a single day, the FTSE 100 dropped 10.8 per cent on the Monday and fell again on the Tuesday. The S&P 500, though, dropped 20.5 per cent on Monday alone.

The run-up to the crash had seen a year of over-enthusiasm, with high investor exuberance over headline privatisations and some ludicrous rights issues. Popular share ownership launched by the British Gas “Tell Sid” campaign was just about to become frightened share ownership.

As it happened, the FTSE 100 at the end of that year was at a higher level than at the beginning. It was almost as if Black Monday had just been a terrible dream — but it was a good lesson in managing people’s fear and remaining steady in a fearful storm.

It is the moment you learn that you must keep your nerve while others are panicking. It is the moment you realise that you can use these frightening episodes to you and your clients’ benefit, when price drops are overdone and good-quality assets are being priced at a great discount. A time to grow up, young man, and the time to find your spine!

But it was also a lesson in the perils of over-confidence and exuberance. We’d had the Big Bang the year before — electronic trading bred complacency that nothing could go wrong. Post-1987, we have circuit breakers to halt trading if markets fall by a certain amount. They might blow the fuse but they won’t necessarily stop a bang — so the great lesson, as ever, is to have a balanced portfolio.

Justin Urquhart Stewart is the co-founder and head of Corporate Development at Seven Investment Management (7IM).