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Memories of the Market's Worst Day

Viewed on a long-term chart, the '87 crash is but a minor detour on the Dow's inexorable march to 14,000 and beyond.

But the events of Oct. 19, 1987, had a major legacy, in terms of both the structure of the market itself and the psychology of market participants.

Lesson No. 1 of the crash is that "so much of stock trading is driven by human emotion" rather than economic fundamentals, says Teddy Weisberg, president of Seaport Securities and a 40-year veteran of the New York Stock Exchange. "Day to day, it's human emotion that's driving the trading train, [and] when greed turns to fear, it's a freight train."

The veritable cattle cars full of sell orders on the day of the crash left the Dow down 508 points, or 22.6% -- the equivalent of about 3,100 points in today's terms. The extent of the damage and the floor's dysfunction amid then record-setting volume prompted the NYSE (now NYSE Euronext (NYX)) to embark upon a modernization effort that continues to this day.

In October 1987, trading was done much as it had been in the prior decades, by handwritten orders submitted via specialists.

(To watch a video on what has changed, click here .)

These orders were subsequently entered into computer programs that then calculated the prices for individual stocks and major stock proxies alike. In other words, real-time stock prices were unavailable, even for the most sophisticated investors.
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