When the stock market crashed back in October 1987, I was a banking-technology analyst working in San Francisco's financial district.
Known as "Black Monday," Oct. 19 saw the bellwether Dow lose 22.6% of its value in a single day.
My boss called me from New York after the market closed to talk about the impact of the Dow's plunge.
"This is huge," he told me. "It's Kaboom..."
"Hey, this is great news," I said. "They're having a sale on Wall Street."
I'm not making light of the coronavirus correction that has slammed the stock market. I know the current panic is bound to slow the economy as we see travel restricted, events canceled, and businesses temporarily closed.
As a boomer of a "certain age," I have lived through all sorts of events that have either roiled the economy or the market - or both.
We're talking about the Vietnam War, two Arab oil embargoes, and three Gulf Wars. I also had to manage my way through several recessions and witnessed big political upheavals like two presidential impeachments in the last 21 years.
Not only that, but I had to work my way through the "dot-com" bust of 2000-2002 and the Great Recession of 2008.
It'll get worse before it gets better. But as I try to get a sense of the long-term picture here - as I need to, in order to get a sense of how to invest for this situation - here's what I see...
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Lessons from Investing History
I can tell you from firsthand experience that events like those unfolding before our eyes always look much worse when you are caught in the middle of it all.
That's especially true when you have the media providing saturation and 24/7 wall-to-wall coverage. As individuals and investors, this kind of constant media attention can leave you reeling, with that stomach-churning sense that things are spinning out of control.
At times like these, of course you're going to worry about the impact the market's bruising sell-off will have on your net worth and your retirement accounts.
But I have seen that after each of these shocks to the "system," both the economy and the stock market have eventually rebounded.
The crash of 1987 is a good example. As I noted earlier, Black Monday, the crash on Oct. 19, clipped more than 22% off the Dow's value in a matter of hours.
After that debacle, the federal government instituted reforms to prevent this type of panic. Most notable is what we saw Monday for the third time in six sessions.
I'm talking about the circuit breaker that halts all trading for 15 minutes if the S&P 500 drops more than 7%. The idea is to give investors a moment to catch their breaths and halt the onslaught of sell orders.
Had this been in place back then, Black Monday couldn't have played out the way it did, neither in its severity nor in its speed.
Here's the thing. The long-term bias of the U.S. stock market is up. Once the panic is over and investors feel confident again, they will get back into the market.
And that can happen fairly quickly. It took just 15 months after Black Monday for the stock market to get back to even.
After that, stocks resumed their upward march on the strength of the U.S. economy, which has proven time and again that it is incredibly resilient.
We saw something similar happen in the 2008 financial crisis. On Sept. 29 of that year, the Dow lost nearly 778 points in one session.
I vividly recall that panicked investors began unloading stocks en masse. Driven by fear, many took extreme losses simply to get out.
But remember, both those events were caused by fundamental issues in the economy.
In the late 1980s, it was the impact of the leveraged buyouts that swept the nation and weakened corporate and bank balance sheets across the board.
And the crash of 2008 occurred on the back of subprime lending practices. Back then, it was almost as if anyone could buy a home they couldn't afford with no money down.
Yet not even the subprime insanity of 2008 could keep investors down.
The market has hit new highs many times since then. And while you could argue the market was overbought, let's be clear that what is happening right now is not based on a weakening economy or financial system. It's an external factor...
Waiting out the Storm
The current sell-off stems mostly from the fact that government officials all over the world are shutting down or restricting travel and other events due to the impact of the coronavirus.
Here in the United States, health officials and the media are warning that the worst is still to come. It didn't help matters that the Fed just lowered interest rates to zero. In fact, that only spooked Wall Street even more.
That reaction obscures the fact that until quite recently, the underlying economy has remained very strong, with the best jobs climate we've seen in 50 years.
With that in mind, here are 10 things to think about right now:
- Remain calm, and keep the coronavirus and economic news in their correct contexts.
- Avoid panic-selling, especially if you will take steep losses.
- But make sure you have your protective stops in place to lessen the impact on your portfolio.
- If the market triggers your stops, take it in stride and move on. This is no time to second-guess yourself.
- Remember that your retirement accounts are for the long haul, and you benefit by adding to your positions while the market is off. This is the ideal time for dollar-cost averaging.
- Put together a list of stocks you would like to acquire when events are more in your favor.
- If they are great tech stocks that you want to start buying soon, enter with small amounts and build positions gradually.
- On the other hand, don't get greedy right now and pounce on stocks just because they suddenly seem "cheap."
- If you harvest profits from a taxable account, be sure to reserve for them. You don't want to end up being upside-down with the IRS next year.
- Pay down whatever debts you can. This is a good time to be as liquid as you can.
Let me close with a tool that is not financial. This one is philosophical in nature.
I awoke at 5:30 a.m. Monday knowing full well it would be a very tough day for investors.
So, I lay there and literally counted my blessings - two wonderful kids, a great marriage to a loving wife, my health, a nice home in a beautiful location, and the fact that both of my parents are still alive.
And the joys of being a tech investor, because no matter what bumps the economy or what the market throws in our path, this sector is going to remain the road to wealth.
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About the Author
Michael A. Robinson is a 36-year Silicon Valley veteran and one of the top tech and biotech financial analysts working today. That's because, as a consultant, senior adviser, and board member for Silicon Valley venture capital firms, Michael enjoys privileged access to pioneering CEOs, scientists, and high-profile players. And he brings this entire world of Silicon Valley "insiders" right to you...
- He was one of five people involved in early meetings for the $160 billion "cloud" computing phenomenon.
- He was there as Lee Iacocca and Roger Smith, the CEOs of Chrysler and GM, led the robotics revolution that saved the U.S. automotive industry.
- As cyber-security was becoming a focus of national security, Michael was with Dave DeWalt, the CEO of McAfee, right before Intel acquired his company for $7.8 billion.
This all means the entire world is constantly seeking Michael's insight.
In addition to being a regular guest and panelist on CNBC and Fox Business, he is also a Pulitzer Prize-nominated writer and reporter. His first book Overdrawn: The Bailout of American Savings warned people about the coming financial collapse - years before the word "bailout" became a household word.
Silicon Valley defense publications vie for his analysis. He's worked for Defense Media Network and Signal Magazine, as well as The New York Times, American Enterprise, and The Wall Street Journal.
And even with decades of experience, Michael believes there has never been a moment in time quite like this.
Right now, medical breakthroughs that once took years to develop are moving at a record speed. And that means we are going to see highly lucrative biotech investment opportunities come in fast and furious.
To help you navigate the historic opportunity in biotech, Michael launched the Bio-Tech Profit Alliance.
His other publications include: Strategic Tech Investor, The Nova-X Report, Bio-Technology Profit Alliance and Nexus-9 Network.