October 19, 1987.

Today marks the 30-year anniversary of Black Monday when the Dow Jones Industrial Average fell over 22%!  It was a dark day as stocks fell to historic lows.  Despite the drop, the Dow finished the year with a gain of 2.26% and it climbed 11.85% in 1988 and 26.96% in 1989.

In 1937, during the Great Depression, Sir John Templeton purchased $100 worth of every stock trading below $1 per share.  A few years later he sold most of them for a substantial profit.[1]  The Standard & Poor 500 fell 35% in 1937.  It’s not easy, but when investors are in a panic selling mode it allows the patient investor to buy great companies at bargain prices.

Here are a few stocks you could’ve purchased on Black Monday.[2]

  • Coca-Cola: A $10,000 investment in KO is now worth $453,514.
  • Boeing: A $10,000 investment in BA is now worth $556,532
  • McDonald’s: A $10,000 investment in MCD is now worth $590,529.
  • Johnson & Johnson: A $10,000 investment in JNJ is now worth $634,413.
  • Apple: A $10,000 investment in AAPL is now worth $1.44 million.

Will we ever experience another Black Monday?  Forever is a long time so it’s likely we’ll witness another dramatic drop.  When the market does fall again, here are a few survival tips to help you navigate the correction.

  • Buy. Stocks sell for bargain prices when individuals sell out of fear.  I’d recommend creating a list of companies you want to purchase before the correction arrives so you’ll be ready to pounce on your ideas during the market turmoil.
  • Wait. If you’re not sure what to do during a market meltdown, don’t do anything.  Your best strategy may be to wait until the storm passes and then you can make changes to your portfolio.
  • Diversify. A diversified portfolio will help reduce the losses in your portfolio.  In 1987 the international index (MSCI-EAFE Index) was up 24.6% and the one-month T-Bill was up 5.5%.[3]
  • Rebalance. During a steep stock market drop your asset allocation will change significantly.  Rebalancing your portfolio will return your account to its original allocation.
  • Review. Reviewing your investment plan and financial goals is always recommended, especially when the stock market is falling.  Are your goals still intact or do you need to make changes?
  • Think. What’s the root cause of the correction?  Flash crash?  Political event? Failed merger?  Knowing the reason behind the crash may give you some time to think about selling your holdings.

From October 2007 to March 2009, the Great Recession, the Dow Jones Industrial Average fell 53.5%.  It bottomed on March 9, 2009 and since then it has climbed 257%.

Corrections are petrifying but markets have always recovered.  In fact, today, the Dow Jones closed at an all-time high of 23,157!

“Unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market.” ~ Warren Buffett

Bill Parrott is the President and CEO of Parrott Wealth Management.  For more information on financial planning and investment management, please visit www.parrottwealth.com.

October 19, 2017

Note:  Your returns may differ than those posted.  Past performance isn’t a guarantee of future performance.

[1] http://www.investopedia.com/university/greatest/johntempleton.asp, By Nathan Reiff, website accessed 10/16/17.

[2] Morningstar Office Hypothetical Tool – 10/19/1987 to 9/30/2017.

[3] Dimensional Funds 2017 Matrix Book.

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