20 minus 3

October 16, 2007
It is almost twenty years since the largest one-day stock market plunge in history. In honor of the momentous anniversary of October 19, 1987, I am devoting this entire week of articles to what led up to the crash of 1987, my personal memory of the week and day itself and what lessons we might be able to draw twenty years later as the Dow Jones Industrial Average and the S&P 500 Index are making new highs.

When I left off yesterday, it was July, 1987 and I had just started my first job on Wall Street. In preparation for becoming a metals option trader on the Commodities Exchange of NY (COMEX) for Spear, Leeds and Kellogg, I spent time with traders on the floors of the New York Stock Exchange, the American Stock Exchange, the New York Futures Exchange and then a few days with the really big players who traded from off the floor. I remember feeling exhilarated by the action, but overwhelmed by the amount of information that each trader tracked on a daily basis. The story of being called a “*&^%$-ing idiot” during my first week of work is probably better left for another article! Suffice to say that during that memorable exchange, I learned that the 30-year bond yield touched a new high of 8.79%, its highest level since early June.

By mid August, I completed my rotations on the other exchanges and was ready to start clerking on the COMEX floor. The value of the dollar was falling, which was pushing precious metals prices higher (gold was trading above $400), but I remember being a little disappointed because the real action was taking place in stocks, not in commodities. By the end of the month, the celebrations from stock exchanges could practically be heard blocks away, as the Dow Jones Industrial Average reached 2722.4 -- a high that was not breached until exactly two years later on August 24, 1989.

By mid September, my boss decided that he could not be bothered with training and so he gathered the six clerks together before the opening one morning and said, “I can’t deal with any of you right now, so here’s the deal: each of you has a bunch of money in a trading account. This is the firm’s money, not your money. If you lose it, we will fire you. If you don’t make enough money, we’ll fire you. If you make us money, you may keep your job, as long as you stay out of my way. You need to make money before we hire a clerk for you. Until then, you are on your own. Did I mention that I can fire you? Great, so good luck.”

To say that I was nervous was an understatement. I called my dad to ask advice and he said to try to spend a few days observing. He also reminded me that I knew how options work, but since I had never made the buy and sell decisions for myself I should keep my trading to small amounts. I remember almost nothing from the first few days, except that I stood in the gold options ring and barely uttered a word. The silence was broken when a guy shoved me and said, “Are you going actually do anything with that seat that the firm bought you, princess?” Ouch, but it got me to make my first trade – I’m pretty sure that I lost money on it, but it was a start.

By the end of September, I was trading every day, although not in huge quantities. At the same time, the 30-year Treasury reached 9.77%, its highest level since December of 1985 and the Dow had already fallen to 2590.6, 4.8% below the all-time high hit in August. I will never forget my father’s partner saying, “I’m sure glad that September is over!” My father thought about canceling an upcoming trip to Italy, but did not want to disappoint my mother. They were due to depart October 10th.