Twenty-six years ago today — October 19, 1987— a friend called me and said, “The world came to an end today.” He knew that I didn’t play the stock market, so he thought perhaps I didn’t even know that the market had suffered its biggest one-day loss in history — 508 points, which represented a 22.61 percent drop to 1,738. Wall Street still refers to it as “Black Monday.”
The news didn’t particularly surprise me, nor did the May 6, 2010 drop of 998 points (roughly 600 of which was regained in a matter of about ten minutes) or the overall market dot-com-bubble downturn of 2002.
Other than a couple of short forays into the stock market when I was a very young (and naïve) man, I’ve avoided engaging in that particular form of gambling. After reading Richard Ney’s 1970 bestseller The Wall Street Jungle, in which he explained how New York Stock Exchange “specialists” and insiders manipulated stocks to line their own pockets, I became convinced that the market was nothing more than a huge redistribution-of-wealth scheme.
Unlike government redistribution-of-wealth programs, however, in the Wall Street version the money goes from the pockets of amateur investors into the giant coffers of Wall Street firms and market professionals.
If any thoughts about making money in the stock market still lingered in my mind after reading Ney’s book, they were completely dissolved when I read Michael Lewis’s 1989 eye-opening bestseller Liar’s Poker. Lewis, in great detail and with equally great humor, described the out-and-out crooked dealings and disdain for the small investor he witnessed while working at Salomon Brothers. The idea that the “big boys” are laughing at you behind their closed mahogany doors is not a great confidence builder.
Lewis’s and Ney’s masterpieces should be on the bookshelf of every individual who believes the stock market is the best place for him to increase the value of his nest egg. Many studies have repeatedly demonstrated that throwing darts at a dartboard containing the names of listed stocks often produces better results than do the careful analyses of many of the most highly touted stock-market experts.
Nevertheless, every generation insists on pushing markets beyond their breaking points, and usually those who can least afford it end up holding the bag. The Sufi poet, Jalaluddin Rumi, must have been thinking about amateur market investors clear back in the thirteenth century when he wrote that even Jesus fled from the fool, saying, “I can make the blind see, the deaf hear, the lame run and raise the dead, but I cannot turn the fool away from his folly.”
Thus, when people ask me where I think the stock market is going from here, I tell them honestly that I have no clue, nor do I ever think about it. It would not surprise me if the DJA dropped to 3,000 (in a deflationary depression) or ultimately skyrocketed to 100,000 (in a more-likely runaway inflation). To be sure, insiders can manipulate the market in the short term, but ultimately the condition of the economy will force the market to succumb to reality.
If you believe that the $100 trillion+ of debt and unfunded liabilities of the United States is not a big problem, then by all means go right ahead and “invest” in the markets. But if you don’t see any way possible that a debt greater than all of the wealth of all of the people and corporations in the United States combined can be resolved in a way that will not create shock and awe in the economy, you might want to think about steering clear of the markets (stocks, bonds, commodities, derivatives — all investment markets).
Enough said. Now, let’s all raise our glasses and join in a toast to the twenty-sixth anniversary of October 19, 1987 — the day the world came to an end. Hmm … I wonder how many times the world can come to an end before it actually ends.