I have to make a confession about 1987. In every way I was an idiot. Let me explain.
I was 19 years old and couldn't figure out if I wanted to continue with college or not. I had started a business called CollegeCard with two other people. We offered a debit card to college students at Cornell, where we all went to school (rather reluctantly, since I don't think any of us attended more than a handful of classes during our time there).
My job was to convince all of the stores and restaurants in the area to not only accept our card (most of them never accepted a credit card before, since most college students didn't have cards then), but to also convince them to offer discounts to people who used our card. I ended up signing up 90 stores and restaurants and getting, on average, a 20% discount (the biggest discount offered was a 90% rate reduction at a fitness club in the area).
I then had to program the point-of-sales machines to accept our card (I had a DEC PDP-11 sitting in my dorm room and it made so much noise I could barely sleep), install them and then train the staff of every Greek diner in Ithaca, N.Y., on how to use the machine. We signed up about 1,000 students who paid $21 a semester. We then set up a delivery service to run food from every place that accepted our card. It was sort of like Kozmo.com without the $100 million investment in infrastructure.
So I was busy. Too busy for college. Furthermore I had just won about $6,000 in a chess tournament (thank you, World Open Philadelphia 1987. And for that kid in the last round who played the queen's gambit declined and missed a mate in three against me, I thank you also). As a result I felt I was rich. So I did what any other entrepreneurial 19-year-old would do coming into a massive amount of money like that. I dropped out of college (I was a sophomore) and bought a car, a 1984 Honda Civic.
But after a day I started to panic. I was watching everyone go off to their first classes of the fall semester and it looked like they were having fun. And suddenly I wanted to take computer classes (my first programming experience was programming these point-of-sale machines and they got me excited. I wanted to "hack"). So I dropped the car back off, cancelled the check I had written for it (fortunately all check-clearing was pretty slow at that time), and used about $4,000 of the money I'd won to enroll in school again. But what to do with the other $2,000?
I read the book
around that time about oilman T. Boone Pickens. He seemed smart and he was running a company, Mesa Petroleum. I figured, what would go wrong? So On Oct. 15, 1987 give or take a day, I bought a massive $2,000 worth of Mesa Petroleum. I slept comfortably that weekend, knowing for sure that I was going to be rich ($10,000?) before long. Pickens was riding high on every trend of the '80s: oil, heavy leverage, corporate raiding, Michael Milken, etc. It was sexy and exciting. It's exactly where I wanted all of my money.
Well, Oct. 19 came and the market became a total disaster. One of my partners at CollegeCard was the daughter of a CEO of one of the top thrtee investment banks (in fact, he reluctantly invested, and lost, the $30,000 he put into our little business). She told me that he was talking to the Secretary of Treasury all day long and by the end of the day he had made "a ton of money." But who knows about stories like that. Everyone spins something on a day like that. But I was wide-eyed and scared.
Mesa Petroleum went to $0, and I lost my $2,000. I didn't buy a stock again for nearly 10 years (
in October 1997). My two partners at CollegeCard graduated and went to business school (one ended up marketing Pokemon, and the other lives on a farm in the south of France).
So why was I an idiot? Well, for one thing, I wish I had waited five days to put money in the market because the market was back at all-time highs less than a few months later. That's always the case whenever the market falls like that. I know it's easy to say in retrospect, but
was a split-adjusted 27 cents at the close on Oct. 19, 1987. Intel was a split-adjusted 80 cents. The best-performing stock of the past three decades (guess what it is),
, closed at a split-adjusted $1.30 that day (it's now at $138).
Many people say we're heading for a 1987-style crash again. I say, bring it on. The economy, although slowing, has never been poised for better growth. For the first time ever we have a true global economy to steer the decades ahead rather than a testosterone-fueled USA dragging the rest of the world forward on its coattails.
For once, we can relax and enjoy the ride. And a ride it will be, fueling biotech --
Johnson & Johnson
are my current favorites in this space. Fueling tech --
and Facebook (when its public). And fueling financial services --
, and believe it or not,
. The U.S. still has a solid lead in these three sectors and they will be our greatest export in the next two decades.
If you're truly worried about a crash, then the best thing we can do is look at history and the market's reaction to past cataclysmic events:
North Korea invades South Korea:
- S&P close prior day: 19.14
- S&P close next day: 18.11
- S&P close six months later: 21.03
Kennedy announces nukes in Cuba:
- S&P close prior day: 55.59
- S&P close next day: 53.49
- S&P close six months later: 70.14
- S&P close prior day: 71.62
- S&P close next day: 69.61
- S&P close six months later: 80.73
Iraq invades Kuwait:
- Prior day: 355.52
- Next day: 344.86
- Six months later: 409.53
The 9/11 Terrorist Attacks:
- Prior day: 1092.54
- Next day: 1038.77
- Six months later: 1165.55
You're going to see a lot of articles in the next 24 hours about how 2007 is similar to 1987. These articles completely ignore the improvements in not only the global financial system (the downfall of Communism for instance), but also in the machinery that runs the global exchanges.
Uncertainty breeds contempt, fear and ultimately loss. Throughout the day on Oct. 19, 1987 (and in a similar October day in 1929) most people, including their brokers, had no idea at what prices stocks were being quoted. A mass sale resulted because people assumed the worst in these cases.
It's not going to happen. But pray that it does. Because once it happens there's money to be made. Like every other time in history. And don't believe the people who say "this time things are different."
By the way, the other mistake I think I made that semester back in 1987 was going back to college. But that's another story.
At the time of publication, Altucher and/or his fund had no positions in stocks mentioned, although positions may change at any time.
James Altucher is president of Stockpickr LLC, a wholly owned subsidiary of TheStreet.com and part of its network of Web properties, and a managing partner at Formula Capital, an alternative asset management firm that runs a fund of hedge funds. He is also a weekly columnist for
The Financial Times
and the author of
Trade Like a Hedge Fund
Trade Like Warren Buffett
. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Altucher appreciates your feedback;
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