Viewed on a long-term chart, the '87 crash is but a minor detour on the
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
) 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,
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.