Cover story
[ MARKET CRASHES ]
10 / 11
“The result was confrontation,
strikes and the three-day working
week. At the time, the UK had a
strong manufacturing industry and
high oil prices forced up costs and
sent production overseas, further
impacting the economy.”
Data from the Bank of England
shows inflation in the UK averaged
13.7 per cent a year during the 1970s,
meaning you would have needed
£36.07 in 1980 to buy goods priced at
£10 a decade earlier.
To put it another way, your
investments would have needed to
make more than 250 per cent just to
break even.
Fortunately, however, then came the
calm after the storm.
“Based on subsequent returns,
August 1982 stands out as the best
long-term buying opportunity for
stocks ever,” Hardy adds.
10 o’clock we literally
decanted to the pub.”
Hale says the systems
and technology used
back then were no match
for the speed of the
crash – for example, his
office had Ceefax rather
than Bloomberg screens,
so didn’t have access
to instant pricing. As a
result, it was difficult to
determine a fair value
for the securities he was
supposed to be trading.
“It got to the stage
where orders were
coming in so fast that
they couldn’t be filled
for at least an hour.
The option markets got
completely dislocated.
People who had been
clever enough to buy put
options couldn’t get a
decent price for them.
“Later we heard from
the CEO who said he had
had a phone call from
the Bank of England
saying ‘you guys had
better start buying this
thing’. Then we had a
strong relief rally.”
Black Monday 1987
Lowcock says that
even today, no one
is sure about the
exact cause of Black
Monday, when the FTSE
100 lost 10.84 per cent in
price terms, then 12.22
per cent the next day –
still the largest ever one-
day fall for the index.
“It is generally
attributed to a gut
feeling and concerns
over high levels of
borrowing,” he explains.
“The crash was
exacerbated by the
suspension and closure
of stock markets, creating
confusion in financial
TRUSTNET
circles. Black Monday
is generally seen as a
stock market-driven
event rather than one
caused by any significant
external factors.”
Traders at the time
would find Black Monday
difficult to forget, and
not just because of
what was happening in
markets – the preceding
Friday was when BBC
weatherman Michael
Fish famously assured
viewers a hurricane
wasn’t on its way.
“I got in the car on
Monday and down the
road there was a pine
tree right through the
middle of a Rolls Royce,”
recalls Clive Hale of Clive
Hale Consulting.
“When I got into work
and got the screens
open, I saw the Dow was
off 500 points from a
2,500 closing level on
the Friday. I remember
coming in the next day,
after Wall Street fell
on the Monday, and
the fund management
groups didn’t answer
their phones – one
notable fund house,
who we shan’t mention,
didn’t answer the phone
for two weeks – so at
trustnet.com