The October Crashes of 1907, 1929 and 1987

Could another terrifying October crash happen again?

October is an interesting month, as the last remnants of summer disappear, the leaves produce glorious colors and we give away candy to kids dressed in costumes as fall slides hopelessly into winter.

For investors, however, October can be particularly frightening, as many of the worst times to be invested in the stock market all happened in October. In fact, of the 10 largest one-day percentage drops in the DJIA, 50% of them occurred in October.

Could another terrifying October crash happen again?

October 1907

The Panic of 1907 – also known as the 1907 Bankers' Panic or Knickerbocker Crisis occurred over a three-week period starting in mid-October, when the New York Stock Exchange fell almost 50% from the previous year’s peak.

It lasted six weeks.

October 1929 

The Stock Market Crash of 1929 began on October 24th and was brutal. It left record-setting days in the history books, including:

  • October 24, 1929 – the market lost 11%
  • October 28, 1929 – the market lost 13%
  • October 29, 1929 – the market lost 12%

October 1987

On October 19, 1987, the market crashed suddenly and severely. Fueled by stop-loss orders and panic selling, the DJIA plummeted 22% in one day.

It was the largest one-day drop, in percentage terms, in history.

Is Another Market Crash Coming?

Economists will tell us that a coming financial crash always looms.

The growing national debt, rising Socialism, deficit spending, taxes increasing, governments crumbling. End of the markets, end of civilization, end of the world. Zombies roaming.

How do you prepare if you think that “It’s the End of the World as We Know It?” Here are a few things to consider –and the reasons to not consider too:

Pay off your mortgage. Most “End of the World” scenarios begin with the claim that the Federal Reserve prints money like there’s no tomorrow to devalue the dollar to pay off the national debt.

If the Fed increases the money supply, they devalue the purchasing power of the U.S. dollar. This should cause inflation even if official measurements of inflation remain artificially low.

So, you face a choice: Pay off your mortgage with dollars today or with easier-to-get, devalued dollars over the next 30 years.

But remember, an investment pays you money. If you would spend the equity in your house on something that isn’t an investment, you’re not better off paying off your mortgage. Because you have to have financial discipline to purchase investments.

Get out of paper. One way to think of inflation: a tax on those foolish enough to hold on to U.S. dollars – a fiat paper currency, which a physical commodity does not back – while the Fed devalues the currency. Limiting your investment in paper currency makes sense, especially currencies actively devalued, such as U.S. dollars (and maybe Euros and the yen too).

But being a survivalist means getting out of everything on paper – stocks, bonds and other securities.

But it makes no sense. You own property via a paper deed and a car via a paper title. You own shares in an exchange-traded fund on paper as well.

Even a global financial crash can’t change your ownership in shares of publicly traded companies (though it can drive down the value of shares).

Buy gold. It’s actually easy to put your entire net worth in gold: Shops carry gold coins or you can order gold coins online and they come directly to your door.

Gold runs about $1,500 an ounce. At that price, a million dollars in gold coins (about 670 coins) fits in a briefcase. Do you really believe a briefcase of pretty coins will carry $1 million in purchasing power if the money supply collapses?

Get out of debt. This is much better advice assuming that civilization continues rather than collapses.

Let’s assume we mean unsecured debt such as credit card debt. If civilization collapses, no credit card company can collect unpaid bills.

If civilization continues, avoiding, paying down or somehow dealing with your debt remains essential to building real wealth.

It’s About Time

It’s easy to worry that of the 10 largest one-day percentage drops in the DJIA, 50% of them occurred in October. But guess what?

Of the 10 largest one-day percentage gains in the DJIA, 50% of those happened in October too, including:

  • the day after the crash of 1929 when the market jumped 12.34% on October 30, 1929
  • two days after the market crash of October 1987, when the market jumped 10.15% on October 21, 1987

Time in the markets beats timing the markets. How often do you wish you invested over any 30 years in the market?

Time diffuses the market’s volatility and a globally diversified portfolio best protects you against cataclysms anywhere.

Start saving and investing today. And don’t worry that an October crash is coming.