I remember it well. For me, it was a day filled with rather unimportant events, twenty two years ago today. It was Monday, October 19, 1987, and the weather here in Florida happened to be quite nice: clear and warm with a high of about eighty two degrees. I spent most of the day at my office, taking care of a large number of calls to various business people I knew. Then, at the end of the day,  I went home to my family, enjoyed a nice dinner and later returned to my office for an important evening business meeting. When the meeting finally did get started around 7;30 p.m., I noticed that some of my co-workers appeared ashen and pale. A few of my colleagues began the meeting by lamenting the day and their losses in the Stock Market. Since I was not much of an investor in the Market at the time, it all seemed rather odd to me. Instead of the meeting focusing upon our announced task of reviewing some important financial reports, and of developing some strategies for increasing our company's income, every one in the room just looked down at the floor or seemed uncomfortably sullen.As I sat and watched this group of accomplished business people glare at the rug on the floor, someone began to speak out loud and say something in a tone of despair. The tirst comment was somthing like this.

 "Yeah,  I lost big today, and I don't know how to tell my wife. I haven't even been home yet. I know she has probably seen the news, so, I guess I might as well just sit here and rest my brain for a while. This is not going to be an easy evening at my house. My wife is going to be very upset and worried."

Then someone else piped up.

"Yeah, I loss two hundred thousand today, and I couldn't even get my broker on the freakin telephone! When I finally did get him, just before the four o'clock close, he said that even if I had ordered all of my mutual funds sold earlier in the day, they wouldn't have settled out until after four o'clock. So I was going to get the worst price -no matter when I decided to sell. So, I just told him to forget it. What the hell! That was ten years of savings,  and it all went down the drain in one long, awful day."

Needless to say, we didn't get much accomplished during that meeting. Like I said earlier, at that point in my life, I didn't have much money to invest in the Stock Market. I was more focused on making investments in real estate.  I had enjoyed some success in a few stocks and similar kinds of investments. But at that particular time, I had no money in the Market. When I came home ater the meeting that evening, my wife was happy to see me. She seemed  not to know anyhing about the Crash.  Casually, I told her of what I had seen and heard at the meeting earlier, and this turned out to be a mistake. After telling her all about some of my colleague's unfortunate losses,  my wife began to express great fear. She asked me if I thought real estate could crash next? Surprised at the question, I said I didn't think so, but I would look into it. Then she asked me about our bank, wondering out loud whether the money we deposited there each Friday was safe. I said I thought so, but I wasn't sure. That wasn't a good enough answer for her. So, I promised that I would find out, first thing the next morning. Then, after putting our two children to bed, and telling them a nice story, my wife and I both retired too.  But neither of us could sleep much that night. We were both worried. You see, both of us could remember our parents telling  us stories about the Crash in 1929, and the susequent economic depression that came along with it. We couldn't sleep that evening because we were wondering what was going to happen to the economy in America.

The next morning, I rose and fed my two children their breakfast. Then I turned the kids over to my wife's guidance and care, and headed to the office. I was in the midst of my first cup of coffee and sitting at my desk, when my secretary buzzed me and announced that I had a visitor. Shocked, I asked who? My secretary announced that the visitor, waiting to see me in the waiting area,  was my sometime golfing buddy, Mitch. Mitch was a local dental surgeon. He was well liked in the community, and someone whose work was considered to be the best dental quality available. People from all over South Florida came to see Mitch and have him perform surgury on them. He was that good. Because he was a well known dental surgeon, Mitch was also financially very successful. He lived in one of the nicest houses in our community, and he drove a brand new car each year. Tuesday, however, was not a regular golf day for him or for me, and it certainly wasn't the norm for Mitch to show up at my office and tell my secretary that he needed to speak with me. I opened my office door, greeted Mitch in a friendly manner, and asked him if he wanted to have a cup of coffee. Mitch looked terrible. In fact, he appeared like he hadn't slept at all the night before. I noticed that he had not shaved, and that his eyes were red. The thought crossed my mind that maybe Mitch was having trouble at home. He looked like a man who had slept in his car. Maybe his wife, I thought, had thrown him out.

Mitch came into my office and threw himself onto the couch. He waved his arms around frantically, obviously expressing his need for me to close my office door quickly, so that he could begin his tale of woe and have some privacy with me. I complied, quietly closing the door and then taking my seat in one of my favorite chairs, just in front of him. The conversation between Mitch and me went something like this.

"You look terrible, Mitch! What is wrong?"

"Oh, I haven't slept since Sunday. I can't sleep - not with what has happened. You know what, John? I think I am going to have to kill myself!"

"What?" I said with a great deal of shock and some trepidation. "what are you talking about? Are you and your wife having  some kind of problem or something?" 

"Well, after yesterday, we are." declared Mitch with a rather irritated sound in his voice.

"Yesterday? What happened yesterday?" I stupidly asked.

"The Crash, John! The Crash happened yesterday. I lost three million dollars!"

I just sat there in my chair for a long while, staring at Mitch. I was in shock, and I was in that state for a number of reasons. First of all, I had no idea that Mitch had three million dollars to his name, and I certainly didn't know that he had put it all into the Stock Market.  I certainly knew that he and his family lived well, but I had no idea that he was what I would classify as rich. Not only did I not know what to say to him, but I also didn't have a clue as to how he could have loss that much money in one day. I mean, how could someone lose three million dollars in one session of the Stock Market? I couldn't conceive of that happening to anyone, because I didn't really possess a great deal of knowledge about the Market. Nor did I know much about some of the sophisticated trading vehicles that were available to traders. I mention this here only because it turned out later that Mitch considered himself to be "a sophisticated trader." I certainly knew that the market had dropped over five hundred points, or twenty four percent of its entire value, on the previous day, but I had no idea as to how someone could lose everything  they owned in such a hurry. So I asked Mitch how it happened. This is how the conversation ensued.

"Mitch, how could you lose three million dollars in one day? I mean, I don't understand how that could happen to someone."

"Well, I was on margin - up to seventy percent in one account.  And I got margin calls on all my investments. At the start of the session, I had three million dollars. Then the first margin calls came about eleven o'clock. I started selling stocks to pay the margin calls, but stock prices just kept diving. Then, I got more margin calls. So, by two o'clock, my three million dollars in stock value was gone. But that's not the worst of it."

"It's not? What could be worse?" I asked quite innocently.

" I came out of the day,  still owing the brokerage firm one and a half million."

" What? How could that be?" 

"The margin calls exceeded my accounts value by that much. I am on the hook for a million and a half."

"Oh,"  I said. " Now I understand."  But I really had no idea what Mitch was really telling me.

"Yeah, and you know what, John?  I don't have the money to pay those guys. I am flat broke, ruined. There's no reason to go on. I just want to die."

Looking for any solid ground to stand on, I asked Mitch about his wife and children.

"What about your wife and kids, Mitch? You can't do yourself in. They will be so hurt and distraught by the loss of you that they just won't be able to go on either."

When I said this, Mitch began to cry. He cried and cried. At one point, he cried so loudly that my secretary buzzed me, asking if I was all right. When I said I was fine,  my secretary asked me did I need her to call the police. I told her no again, and said that everything was fine. I explained the noises in office by telling her that my friend Mitch was upset about a serious loss in his family. At this statement, my very nice secretary became quite sympathetic and asked me if she should call a counselor for Mitch. I told her that she should look into it, get some names and call me back. Soon Mitch would be placed with a qualified counselor, and in time, his panic like wish to die would pass. Unfortunately, the debt that he owed the brokerage firm did not go away. Eventually, Mitch was forced into bankruptcy. He lost his car, his home, and even his private practice. It was a disaster for him, and for his family. But he did manage to avoid depression and live on. He also managed to keep his family together through the entire disaster. Eventually, Mitch started over, and rebuilt his life. So, I guess you could say that there was a kind of happy ending to this tale of woe. But it all could have been avoided, if Mitch had been willing to trade with the extensive use of hedges. For some strange reason that I still do not quite understand, Mitch refused to use hedges in his portfolio.This stuborn attitude was the cause of his ultimate economic downfall.

There were three things I learned about the Stock Market in my encounter with Mitch in October of 1987. The first was that I was never going to forget how volitile the Stock Market was, and how margin debt and the Stock Market don't really go together well. If an investor can't make a profit without going on margin, maybe he or she ought not to be investing in the Stock Market. Margin accounts are fine for traders who know how to hedge their portfolio of investments, and how to use stops to protect their initial entering points in their trades. Mitch did not use any hedges or stops, and he refused to use them because he thought he could control his risk without them. WRONG. Unfortunately, many investors have just learned that lesson again this past year in the Crash of 2008, and it hurts now for them, just as much as it hurt Mitch back in 1987.

The second thing that I learned that day with Mitch was that  the importance of money is a relative thing. One guy's two hundred thousand dollars of personal savings, is another man or woman's chump change. No matter how much you lose in the Market, whether you are rich or poor, losses are painful. But no amount of money is more important than a person's life. Money is money, but life is precious and fleeting. We all need to embrace our lives and enjoy each day - no matter how much suffering or pain might be a part of that day's experience.  Why? Because the money we all worry about can be recovered or made again, but our lives are unique, precious and irreplaceable.

The final thing I learned that day in 1987 was that risk taking and losses can generate a chain of panic and despair. We are still in an atmosphere of panic and fear right now - even though we are almost a full year past the last Crash in 2008. Just as my poor wife worried about her pay check, and our bank and whether her deposits of her income into the bank was safe, so the public and even some of our policy makers today, are expressing worry and fear to us on an ongoing basis. We need leaders to remember that as they go, so go we. If they are angry and resentful of what is happening on Wall Street or in America, what is going to be our reaction and our emotions on the same subject? Leaders need to thwart panic and despair by learning how to promote and encourage, just as much as they criticize and cite their own outrage.

Ironically, as the Market continues its climb upward in this new period of rebound from the March 2009  lows, it's lone voice is the only real  tower of reassurance for us all. The Market is telling us with its climb upward that the future ahead is not nearly as bad as everyone seems to fear. The future is waiting for us, and the voice of the Stock Market, at least on today's anniversary of the 1987 Crash, October 19th 2009, is telling us that we need to hold on and look for the days of prosperity ahead. The good life is coming again for all of us. It is just ahead, and time is on our side.

John K. Brackett, Ph.D.

All Rights Reserved

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