Just as no one will ever forget where they were when they heard President Kennedy had been shot, so no one in the financial markets will ever forget what they were doing on Monday, Oct. 19, 1987. I certainly remember what I did.
Around 2: 15 p.m. that day, Bill Bisson, the publisher of Pensions & Investments, and I entered the office of Fred Joseph, chief executive of Drexel Burnham Lambert Inc., to talk about junk bonds and whether they were too risky for pension funds and other institutional investors.
As we sat down, Mr. Joseph looked pale and tired. "The market's down almost 200 points," he told us.
Little did he or we suspect the market crash had begun tolling the death knell of his firm. Rightly or wrongly, Drexel got some of the blame for the crash. Because of Drexel's junk bonds, so the theory went, companies had become overleveraged and that overleverage had contributed to the crash.
As we left Drexel at 3: 30 p.m., we were told the market was down more than 300 points. A little less than an hour later, when I reached LaGuardia Airport for a flight to Florida, the buzz was the market had closed down more than 400 points. This was corrected by the pilot of the plane shortly after takeoff to "more than 500 points."
I have never heard more conversation on a plane. The buzz drowned out the noise of the engines. The cause of the market crash; what the market was likely to do Tuesday; whether this was the beginning of another Great Depression: these were the only topics of conversation on that flight.
My destination in Florida was Amelia Island, where Bankers Trust Co. was holding its annual client conference. I wondered how the pension executives would react. The next morning I discovered a significant number of plan sponsors already had abandoned the conference to fly back to their offices. As one explained, he wanted to be where he was easily reachable in case his fund's trustees, or even plan participants, needed reassurance. Others might have wanted to tell their managers to get out of the market.
However, more than half of the plan sponsors stayed. Richard Lohrer, longtime treasurer at Northrop Corp., said, "Pension funds are long-term investors. I wouldn't change anything if I were in the office, so I might as well stay here."
Of course, most of the speakers at the conference were up much of the night updating their speeches to reflect, react to or explain the market crash, and most did a remarkable job.
At the leisure periods during the conference, at coffee breaks and around the pool, the market was virtually the only topic of conversation.
Was it only 10 years ago? It seems so long ago now, and many of those who attended the conference have retired, like Dick Lohrer, or moved to other jobs or careers.
Those of us who lived through the crash were changed. We were reminded the market can suddenly and dramatically reverse course, and we became more aware of market risk. The crash reminded us of why stocks generate higher returns than bonds - they're more risky. And it also reminded us that stock investing calls for a long-term orientation. Just when we are on the verge of forgetting these points, the market reminds us.