Book Review: The Crash of 1987 by Gordon Hall


Gordon walks us through a series of events that led to the great crash of 1987. The journey begins somewhere in the middle of 1985 when Dow Jones Industrial Average was trading around 1300. The book revolves around one analyst who was bearish on the market that time, thinking Dow was overpriced. He used to track general market conditions and all his analysis pointed towards significant correction in the market.

The market indeed had many small crashes but they all got lost in the good amount of buying, which followed. This kept on going and Dow Jones ultimately crossed 2000. This brought in more bulls in the party and people started coming out with targets of around 3600 on DJIA.

Everyone was enjoying easy money and people started thinking this party will never end. Whenever there was a correction, people used to jump-in without any second thought to buy to the best of their abilities.

Then came in 1987 and DJIA kept marching higher and was trading around 2600 in the middle of year.

General economic conditions were deteriorating with auto sales down some 20-30% or so. There were no hopes of getting money back from developing Nations, whom US banks had given relentless loans. Interest rates were rising and were somewhere around 8-9%. Program trading came into limelight. Huge layoffs on Wall Street and some very big bank failures; First City Bancorp – Texas and BancTexas Group.

Markets were ignoring all bad news as typically happens in bull market. Then came in Oct 1987. Markets had already lost close to 17% in the week before historic crash and had closed around 2240 on Friday. On Monday morning, the whole world was down and down severely. All world markets had fallen anywhere between 15%- 35%.

DJIA lost more than 500 points and closed around 1700 that day, which will be clearly remembered as BLACK MONDAY.

Bottomline, good book to read and I would suggest every trader should go through this book before getting carried away with the notion that “this time it is different”.

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About Danish Kapur

Danish Kapur is a writer, commentator and actively follows the global financial markets.

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