Black Monday 1987: Turning Crashes into Opportunities

Black Monday 1987: Seizing Opportunities Amidst Crashes

Dec 19, 2024

Ah, stubbornness—the virtue of knowing exactly what you’ll be thinking tomorrow, even if it’s the same as today. There’s something poetic about repeating the same tired narrative, day in and day out, like an old, broken record hoping for a different tune. It’s almost endearing in its futility. These market pundits—who stubbornly cling to their old, crumbling rhetoric—might do well to swap their financial jargon for fiction writing. At least then, they’d have a chance of bending reality into something more compelling.

For years, we’ve boldly proclaimed the inevitable rise of the markets, and for years, we’ve been right. Yet, as the leaves turn every October, so do the financial headlines, and inevitably, we’re reminded of Black Monday. Headlines will blare about the crash, the chaos, the doom and gloom—but little mention is made of history’s one lesson: opportunity. The real catastrophe? Not the market itself but the endless chorus of commentators who still think they’re clairvoyants, offering the same tired predictions that were outdated before the ink even dried.

Let’s call it like it is: Rubbish.

Navigating Market Sentiment: A Look Beyond the Headlines

The clamour of the market’s so-called “experts” grows ever louder, usually just as the panic sets in. They bleat about impending doom after everyone’s already in a cold sweat rather than at the perfect moment when the Kool-Aid is flowing freely, and the masses are drinking it up without a second thought. That’s the time to act—not when everyone braces for impact. When the masses are already jittery, savvy investors are busy scoping out their next big opportunity.

Let’s take a look at the latest headlines:

“Could History Repeat? Examining the 1987 Stock Market Crash” – Reuters
“Comparing 2017 and 1987: Black Monday’s Legacy” – Market Watch
“Black Monday Redux? Wall Street’s Concerns on the 30th Anniversary” – express.co.uk
“30 Years After Black Monday: A Reflection” – Courier-Journal
“Buying Opportunities at the 30th Anniversary of the 1987 Crash” – Money Show
“Remembering the Crash of ’87: Insights from Wall Street Insiders” – Bloomberg
“Is a 1987-Style Market Crash Possible Again?” – USA Today

Is a repeat of Black Monday on the horizon? Well, let’s not be melodramatic—history is rarely so generous in repeating itself.

Is a Black Monday 1987-Style Event Completely Off the Table?

No, history doesn’t repeat itself exactly. But as any seasoned investor will tell you, markets always correct themselves—often in surprising ways. We’re not calling for a catastrophe; a correction is in the cards. A “crash,” however, is a bit of an exaggeration. A more likely scenario is that the market will correct, with a sizable dip being the inevitable result of too much enthusiasm and not enough caution.

The danger? The herd. We’ve seen it time and time again: the market peaks, and the latecomers—those who only just discovered their love for stocks—stampede in, just in time to get trampled. This isn’t just a theory; it’s the tragedy of human nature. Everyone buys high, sells low, and the cycle repeats. It’s a stunning failure of collective intelligence, but it’s the sad reality we live in.

Despite the market’s apparent “oversold” status, fear is still remarkably low. That means there’s a high probability that we’re in for another round of selling. As a result, many indices may slide back to or below their 2022 lows. However, one bright spot is the Nasdaq 100 (NDX), which will likely buck the trend and could outperform the rest. That’s the silver lining for those who know where to look.

The more concerning signal is that the Tactical Investor Alternative Dow Theory is flashing a negative divergence, suggesting a downturn is in the cards. The only way out of this is for the Dow utilities to send a positive divergence signal—or risk tumbling into even more deeply oversold territory. Either way, a market adjustment is coming, and it could take a few months to play out.

In short, be patient, stay savvy, and keep your wits about you. As always, fortune favors the well-prepared.

Market Sentiment: Crowd Is Not Scared

Bullish sentiment has increased somewhat, and the general public is not as anxious as at the beginning of this month or last. However, unless the indicators suggest that this public sentiment has turned euphoric, the possibility of a crash remains unlikely.

For a long-term multi-month bottom to form, the masses would need to be in a state of hysteria. Until that point, long-term investors should use market rallies as opportunities to build up their cash reserves.

Unprecedented Investment Opportunities Amidst Market Turbulence

Reflecting on historical market bubbles and peaks, a consistent factor emerges euphoria among the masses before the market takes a nosedive. Even in cases like the tulip mania, where mass media was absent, the frenzy ultimately concluded with a sense of euphoria. Without delving further, we must acknowledge the insights from some of our long-term investor subscribers, who view this as a once-in-a-generation buying opportunity.

Assumptions and speculations primarily drove the market sell-off in 2022. This hysteria-induced selling is now creating a rare opportunity for savvy investors.

While the crashes of 1987 and 2008 are often referred to as the “mother of all buying opportunities,” we may be on the verge of a setup that surpasses even these historical events, potentially giving rise to the “father of all opportunities.” Such an occurrence is sporadic, perhaps unfolding only once in a lifetime.

The current landscape may appear tumultuous in the short term, but those focusing solely on short timelines may miss out on the potential for substantial long-term gains.

Why Not Try Something New For A Change:

Once the trend is identified, the remainder of the investing process becomes relatively straightforward. We provide numerous plays for a simple reason – to enable new traders to identify those that appeal to them. Shedding past preconceptions and embracing new concepts takes time, and we strive to simplify the process by providing a diverse selection of plays. Rather than feeling overwhelmed by the number of plays, one should understand that initiating a position in all of them is unnecessary. Choose those that appeal to you and disregard the others until you become familiar with our methodology. With confidence, you can deploy more significant amounts of capital.

Create a list of stocks you would like to own at a discount. When the markets pull back again – and there is a good likelihood that they will test their 2022 lows – you can calmly select the best stocks for pennies on the dollar while the masses panic. As with Black Monday 1987, you can utilize the next corrective wave or crash to establish critical positions in solid companies.

The Psychology Behind Market Crashes: Why They’re Long-Term Buying:

Market crashes, such as the ones experienced in 1987, 2008-2009, and the COVID crash, are often associated with panic, hysteria, and widespread pessimism. In retrospect, these crashes have proven to be some of our time’s most exceptional buying opportunities, and the strong correction of 2022 is no exception. Understanding the psychology behind these events is crucial to profit from their opportunities.

One key factor in market crashes is the mass psychology of investors. People are prone to panic, often leading them to sell off en masse, exacerbating market volatility. This psychology is evident in the 1987 Black Monday crash when people panicked and sold their shares. However, investors who remained calm and held onto their shares were rewarded as the market rebounded and provided a tremendous buying opportunity.

Understanding Mass Psychology and its Impact on Market Downturns

Similarly, the 2008-2009 financial crisis was another example of mass psychology at work. Fear, uncertainty, and widespread pessimism gripped the market as the economic system teetered on the brink of collapse. However, those who remained steadfast and believed in the market’s underlying strength were rewarded as the market bottomed out and started to recover. Again, those who bought into the market then enjoyed significant gains as the market rebounded.

The COVID-19 crash was another example of mass psychology in action. The global pandemic caused widespread panic and uncertainty, which resulted in a significant market downturn. However, those who held their nerve and recognized that the market would eventually recover enjoyed impressive returns as the market rebounded.

The strong correction of 2022 is yet another example of mass psychology at work. The sell-off was based on conjectures and assumptions rather than underlying fundamentals, and this hysteria-based selling created a rare opportunity for the intelligent investor. As with previous market crashes, the market will rebound, and those with the foresight to invest now will be rewarded.

Understanding the psychology of the masses is critical to profiting from market crashes. The masses panic, sell their shares, and create opportunities for those who remain calm and believe in the market’s strength. It is essential to stay level-headed, focus on the long term, and recognize that market downturns are temporary and present exceptional buying opportunities.

Market crashes, such as the 1987 Black Monday, the 2008-2009 financial crisis, the COVID crash, and the strong correction of 2022, are long-term buying opportunities based on mass psychology. By understanding the psychology behind these events, investors can remain calm, hold onto their shares, and take advantage of the opportunities presented by market downturns. The key is to stay focused on the long term, recognize that market downturns are temporary, and provide exceptional buying opportunities for those with the foresight to invest.

Conclusion

In finance, one constant prevails market euphoria preceding a significant downturn. This phenomenon isn’t exclusive to the Black Monday 1987 crash; it’s a recurring theme throughout history. Even in the absence of modern mass media, as witnessed in the tulip mania, frenzied market peaks invariably conclude with euphoria.

Some long-term investors see current market conditions as a once-in-a-generation buying opportunity. The 2022 market sell-off was driven by conjecture and assumptions, creating a unique opportunity for astute investors.

The crashes of 1987 and 2008 are often dubbed the “mother of all buying opportunities.” Still, we may stand on the brink of an even more exceptional scenario—the “father of all opportunities.” Such a rare event may occur just once in a lifetime.

Focusing solely on immediate market movements could mean missing substantial long-term gains despite the short-term turbulence. It’s imperative to recognize the lessons of history, particularly from the Black Monday 1987 crash, as they guide us in identifying warning signs and potential investment opportunities.

In conclusion, understanding market psychology is critical to navigating market crashes like the Black Monday 1987 crash and profiting from them. Mass psychology often drives panic selling, creating opportunities for those who remain calm and believe in the market’s strength. By maintaining a long-term perspective and recognizing the temporary nature of market downturns, investors can seize these exceptional buying opportunities and reap the rewards.

Obstinacy is the result of the will forcing itself into the place of the intellect.

Arthur Schopenhauer