Over five years, the Dow Jones had more than tripled in value. Computers were helping to manage risk by using programs and derivatives. Economic growth was slowing and inflation was making a comeback. There were military issues in the Persian Gulf. Does this sound eerily familiar? The year was 1987.

Back in those days there was obviously no internet and instant access to news. The system available to watch the market was called a Quotron, each pair of desks shared a machine on a swivel so both desks could take turns as required. Y2K? The space allotted on the machine was only good for 2 digits left of the decimal. Friday, October 16, the market closed down triple digits for the first time in history, down 102 points. The Quotron said -2, not 102. No one thought there would a three digit drop just like no one thought the transition from 1999 to 2000 would ever be cause for concern. On Monday, October 19,1987, some quick math was necessary to determine if we were off 212 or 420 because the machine would only register -12 or -20.

There have been comparisons to 1987 and what we are experiencing today. Strong run up in share prices, inflation returning, military tension but does that mean we are destined for the same outcome? Perhaps not. The aftermath of 1987 changed everything. The Chair of the Federal Reserve was Alan Greenspan at that time and he did what he thought necessary to avoid a prolonged economic downturn; he lowered interest rates dramatically and provided much needed liquidity. It worked and a recession was temporarily avoided until the early 90’s. The move by the Federal Reserve became known as the Greenspan Put as it sent the message to the markets that when things got bad, the Central Bank had it’s back. Every major financial issue that came along, whether The Russian default, the Dot-com bubble, housing crisis or Covid; the Fed has been there and their solutions have, in general, worked. Over the thirty-five years since 1987 much has been learned about exactly how and what contributed most to the 22% drop and many of those issues have been corrected. Will it be enough to prevent of save us from a repeat? No one knows for certain but looking at this in perspective sheds some light. We do know for certain that every correction or recession and the reason they happen is different meaning the outcome and duration is impossible to guess but it will end. Robert Frost once said “the best way around a problem is through it”, and we’ll get through this one too, eventually.

At the time of writing, the Dow Jones is down 12.8% year to date. If the market continued to correct in a magnitude of 1987 we are better than half done this correction. Not pretty but with the benefit of hindsight we can see how it turned out. If someone sold in October 1987 they missed out on growing their money by a factor of 13. One million dollars in 1987 would be worth thirteen million today; let that sink in. Yes, you can try to get cute and trade the zigs and zags of the market short term but really, the market itself does most of the heavy lifting provided you have the fortitude and the patience, both things are within our control.

Here's the thing: we cannot control the global economy, we cannot control the virus, the war or the Fed but we can control how we react. While we might not have thirty five years to recover losses we do have time to take a step back and assess today. If you sell out today, what metrics will you use to decide when to get back in? If you are making a decision today based primarily on emotion (how the market makes you feel) then will you use emotion to determine when you get back in? Could that lead you to be buying well after things have recovered? Would it make more sense to believe things will return to a time of progress and let the market do the heavy lifting as previously discussed? You control that decision.