What are the facts on Wall Street’s behavior: then and now?
What is/was worse: 1929? Oct 1987? Oct 1998? Or, now?
I’m not the financial type, so keep it simple. I WAG that 1929 was the largest one-day drop? And, I WAG, in 1929 the market must have gone on a lengthy roller-coaster ride before eventually recovering (or did one of Roosevelt’s plans have to help stabilize things?)
In short, isn’t what’s happening now even more alarming?
I believe Oct '87 was the biggest one-day drop in the Dow (by number of points). On a percentage basis, 1929 was higher.
1929 was by far the worst. Not only did the market drop like a 16-ton weight, but most investors bought on margin – as high as 90%. That meant that if the stock dropped, they had to pump in more money or lose their entire investment. Some invested more to cover the margin, but found that was pouring sand down a rathole: their broker called in a few hours asking for more margin.
Fewer people buy on margin these days, and it’s only 50%. You will lose money, but in most cases, you won’t lose everything. If the stock was at $100 and drops to $80, you still have that $80; buying on 90% margin would mean you wouldn’t have that.
So it’s a matter of concern, but not as dangerous as the Crash of '29.
There’s a very good article on historic crashes over at BBC.
Contrary to popular opinion, the biggest one-day fall (either absolutely, or relatively) was by far the Black Monday, 19 Oct 1987, when the Dow lost more than 20% in one days trading. On the other hand it rebounded already the next day (when the Dow rose substantially).
The problem with the 1929 crash was that it was so prolonged. The market kept sinking for several years, and didn’t recover until in the 50’s!