With the 30th anniversary of the 1987 Crash looming, we had to update our history of “Black Monday, The Crash of 1987”.
Inevitably on this occasion we must also draw parallels with the horribly inflated US stock market of today. For now, here is the part of our ebook leading up to October, with the rest following in coming weeks. I hope you enjoy it – and yes, I was there.
The 1980s was a time of recovery, for markets in particular and capitalism generally.
In contrast, the 1970s for the UK had been a time of huge turbulence, politically, economically, and socially - there were painful adjustments for many older industries and the communities which relied on them (which continued some way into the 1980s).
That the problems of the UK were more deep-seated than elsewhere in the world was reflected by the markets. For example, the UK stock market fell by 72% from peak to trough in 1972-74, while US prices fell by only 48%.
Then came a turnaround. By the 1980s the stock market was prepared to look beyond the continuing political turbulence, and social pain, and rose very sharply from 1982, celebrating a new era led by Ronald Reagan and Margaret Thatcher (who had been elected Prime Minister in 1979).
The big idea was that Governments were to shrink, and capitalism was to be allowed to flourish. Individualism and greed were good.
“This time next year we’ll be millionaires”
This was more than a Del Boy catch phrase – it was the mantra for a generation. And many of that generation went further, encouraged by laissez-faire Thatcherism, and embraced another Del Boy guide line:
“The government don't give us nothing, so we don't give the government nothing”
This new “can-do” culture was epitomised by the rise of the yuppie, with Filofax (you’ll have to Google that if underage 50) in one hand and the new-fangled mobile phone (the size of a house brick) in the other.
Shrinking the Government and popular capitalism combined to create an era of privatisations, selling off publicly-owned assets. In 1984, amidst massive publicity, British Telecom was sold off. Two-fifths went to the general public, mostly novice investors, and on 20th November 1984 there were 2.1 million new budding capitalists enjoying an investment which doubled in value on the first day.
How could capitalism not be popular if you were going to give money away?
As well as Del Boy, other populist characters were born. Say “hello” to Sid. By 1986 it was the turn of British Gas to be privatised, the most ambitious to date. To encourage participation the slogan was invented:
“If you see Sid, tell him”
Four million “Sids” applied for shares in British Gas, 1.5m received an allocation, and many sold within the first few days for another handsome profit.
In 1985 the new FTSE 100 index was up 14%, and up 19% in 1986.
Such was the background to 1987.
A new generation of individual investors were enjoying regular windfalls of apparently free money. Importantly, they were also increasingly confident as consumers. This growing confidence spread through the boardrooms of the UK.
There were plenty of corporate predators, from Hanson to Polly Peck. Competition for big fish such as Distillers and Imperial Group ensured opening bids went much higher before these contests were settled.
Animal spirits abounded, a necessary ingredient for any budding mania worthy of the name.
Confidence in the US was also booming. US companies were issuing vast amounts of debt to go on spending sprees. The amount of debt issued in 1986 was twice as much as 1985, and this trend was to continue in 1987. Very early into 1987 the Dow Jones hit new highs, and volume was huge.
1987, a rollercoaster for popular capitalism
The opening of 1987 was full of optimism. In the UK in particular economic growth was accelerating, productivity was continuing to improve, governments revenues were above estimate, and there was political stability as re-election of the Thatcher regime was assured. (All a far cry from 2017.)
The UK stock market was cheap by international standards, and this was illustrated by the wave of foreign buying.
This confidence was also evident around the globe – the precise reasons varied from country to country, but the confidence was infectious.
The growing worry was the evolution of confidence in stock markets.
“It’s never too late to make a profit, you make money while sleeping.”
A quote from 1987? No. Possibly early 1929? No. It was 1637, the Tulip Mania in Holland.
One mania is like another in terms of investor behaviour. This quote was as relevant as we entered 1987 as in 1637. The constant through the ages is ALWAYS human nature, and, in the case of an investment mania, over-confidence to the point of irrationality - more on that later.
In 1987 Dennehy Weller & Co [the FundExpert parent] was in its infancy, so we worked hard to fill the gap in our experience through a deeper knowledge of stock market history and, in particular, what could go wrong.
NEXT TIME: Corruption and cocaine, but according to one 1987 prospectus “You are buying the dream”. Plus how myself and Linden Weller braved The Great Storm, on the Friday before the Crash, to rescue client portfolios. [Yes it was a time of many extremes and lots of initial caps! And exclamation marks]
FURTHER READING