Wall Street learned how quickly confidence can disappear 39 years ago today.
On October 19, 1987, the Dow Jones Industrial Average plunged 508 points. That was a loss of 22.6% in a single trading session.
For a younger generation of investors, Black Monday is a chapter in market history. For me, it was a day spent managing money clients had trusted me to protect.
Two weeks before the crash, we had moved all our clients into cash. Our system was warning us that the stock market had broken with reality.
The New York Times covered our move to cash before Black Monday.
Trees do not grow to the sky, even when investors begin believing otherwise.
By late August, the Dow had climbed 44% in roughly seven months. Stock prices had risen faster than earnings, making the market increasingly expensive.
Then the confidence supporting those prices began to crack.
The Dow fell 4.6% on Friday, October 16, before the weekend offered a brief pause.
By Monday morning, selling was spreading through overseas markets before American trading began.
On the New York Stock Exchange, sell orders overwhelmed buyers and delayed trading in many stocks. Trading systems struggled to process orders, leaving investors uncertain about actual prices.
Strategies called portfolio insurance added selling pressure as markets fell. Selling fed more selling, turning a bad day into a historic collapse.
A $100,000 portfolio matching the Dow would have lost approximately $22,600 that day. Imagine watching that much money disappear between breakfast and dinner.
Our clients were in cash, but the lesson went far beyond that decision. Black Monday shaped how I think about investing to this day.
Three lessons from that experience guide my work in the American Prosperity Report.
Lesson #1: A Rising Price Is Not Proof of Value
Before the crash, rising prices could make expensive stocks look increasingly attractive. Investors watching their neighbors make money had powerful reasons to join them.
But a stock price climbing faster than business results deserves closer examination. Excitement can push the price far beyond what the underlying company justifies.
That lesson sits at the heart of our Alpha-4 Approach. We research the industry, leadership, financial strength, and the price we pay.
An excellent business can still become a disappointing investment at an excessive price. A popular company does not deserve your money simply because everyone recognizes its name.
In the American Prosperity Report, I share the business behind each recommendation. I examine what can drive its earnings and what those prospects may be worth.
The goal is to give you reasons for investing that survive a change in market sentiment.
We want growing business value to support our investment over time. A rising stock price should never replace the work of understanding what we own.
Lesson # 2: Make Your Decisions Before Fear Takes Over
When investors panic, careful thinking becomes harder precisely when it matters most. Falling prices create pressure to act, whether that action makes sense or not.
Our decision to move into cash came before the chaos of Black Monday. We followed the warnings from our system while we still had time to respond.
That experience reinforced the importance of having a process before trouble arrives.
Today, my business research differs from the system we used back then. One successful decision does not give anyone the ability to predict every crash.
But the discipline behind that decision remains essential to our work.
We study financial strength because a company needs resources to survive difficult periods.
We examine management because its judgment matters most when conditions become challenging.
We review our holdings as new results test the reasons we bought them.
You deserve to understand what changed and whether our investment case still stands. That gives us a firmer basis for decisions than the emotion of a frightening headline.
Lesson #3: Never Confuse a Crash With America’s Future
Black Monday shook investors, but American businesses kept moving forward. With support from the Federal Reserve, markets began to recover.
Within two years, U.S. stocks had climbed above their peaks before the crash.
Protecting your money matters, but staying afraid forever can cost you opportunities. Businesses kept serving customers, creating products, and finding ways to grow.
That is why I remain optimistic about investing in America. We look for strong businesses selling at prices worth paying.
That is the work I do for you through the American Prosperity Report.
I use decades of experience to research investments and explain our decisions. My goal is to help you build lasting wealth while understanding what you own.
Black Monday taught me that your money deserves more than bold predictions. It deserves careful research and the discipline to act on it.
We put those lessons to work every day with the American Prosperity Report
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Regards,
Charles Mizrahi
Prosperity Insider
