The use of the word ‘fall’ here is a horrible pun.
What is it about the autumn and the sudden impulse for stock markets to just fall out of bed? The October Fund referred to in the novel ‘The October Men’ is an acknowledgement that this is a risky time of year for anyone with anything invested in the markets. Here’s a quick overview of the biggest shakes-ups of the last 100 years or so (September / October falls highlighted in orange – please excuse me fudging it a bit!):
|Oct 1907||Panic of 1907 (USA)||Lasting over a year, markets took fright after U.S. President Theodore Roosevelt had threatened to rein in the monopolies that flourished in various industrial sectors, notably railways.|
|24 Oct 1929||Wall Street Crash (USA)||Lasting over 4 years, the bursting of the speculative bubble in shares led to further selling as people who had borrowed money to buy shares had to cash them in when their loans were called in. Also called the Great Crash or the Wall Street Crash, leading to the Great Depression|
|Jan 1973||UK Stock Market Crash||Lasting 23 months, dramatic rise in oil prices, the miners’ strike and the downfall of the Heath government.|
|19 Oct 1987||Black Monday (USA)||This followed the Great Storm in the UK (which happened on a Thursday night) shutting the London Stock Exchange down on the Friday. By the time the NYSE had woken up, this may have been the final straw for an over-inflated market at a time of galloping bank interest rates.|
|13 Oct 1989||Friday the 13th (Mini-crash USA)||Caused by a failed leveraged buy-out of United Airlines|
|27 Oct 1997||Mini-crash||Global crash caused by an economic crisis in Asia|
|10 Mar 2000||Dot-com Bubble (USA)||Although this sector’s bubble burst, it took a lot of other sectors down with it. The value of equities as a whole took a haircut|
|11 Sep 2001||9/11 Attacks||This caused a short-term fall as insurance stocks saw a massive hit|
|9 Oct 2002||2002 Downturn||Downturn in stock prices during 2002 in stock exchanges across the United States, Canada, Asia, and Europe. After recovering from lows reached following the September 11 attacks, indices slid steadily starting in March 2002, with dramatic declines in July and September leading to lows last reached in 1997 and 1998.|
|11 Oct 2007||US Bear Market||Till June 2009, the Dow Jones Industrial Average, Nasdaq Composite and S&P 500 all experienced declines of greater than 20% from their peaks in late 2007|
|16 Sep 2008||Financial Crisis (USA)||This was the collapse of Lehman Brothers, the sub-prime scandal, the bank bailouts – total financial meltdown|
So, as I discovered in 2007, don’t go off on holiday on a remote beach in Turkey thinking that all is right in the world. It appears the Big Animals of the City take their holidays in August and come back to work in a bad mood. Obviously the reasons for stock market crashes are more complex than senior traders’ holidays as the table above shows but it does seem to be an extraordinary coincidence nonetheless.
The other thing one has to remember is that a falling stock market is an investment opportunity. The worst time to buy shares is when the market is high; you can only lose money really despite the confidence that a nice, high market can give one.
As I write, the pundits are all predicting a crash. No one is saying where it’s coming from – China? Russia? North Korea? – but the fact that equities have been buoyed up ultra-low interest rates coupled with ‘quantitative easing’ (i.e. free money) means that, when the taps get turned off, there will be a correction.
If I could predict when the crash will come, I wouldn’t need to write a book for a living! (Okay, I did it because I wanted to as well…)