Investment Insider: The lessons wise investors have learnt from Black Monday

October 19 1987 is a day many investors will remember. Black Monday was the day when global stock markets crashed in spectacular fashion. Within a fortnight, shares in Hong Kong had almost halved in value. In the UK and the US, investors lost more than a quarter and a fifth of their investments, respectively.

The exact reasons for Black Monday are still unclear, but what matters are its lessons. For me, 1987 was characterised by an unhealthy interest in flotations. Many investors believed it was possible to make easy money by investing in newly floated companies one day and selling them quickly for a rapid profit, ignoring the importance of valuation. For instance, the flotation of retailer Sock Shop was 50 times oversubscribed and Tie Rack's 80 times.

A 20 per cent drop in your portfolio's value is never pleasant. But, the FTSE 100 recovered after Black Monday, ending the year some 2 per cent higher. What's more, today's stock market, at around 5,800 points, is 180 per cent higher than on Black Monday. This underlines the importance of focusing on the long term and of taking advantage of market falls to buy quality shares at reasonable prices.

There is a more important point about the recovery after Black Monday. The total return – from reinvesting dividends – has been astounding. Had you invested £1,000 in the UK stock market on 19 October 1987 and spent all your dividends your investment would be worth £2,800 today. But had you reinvested your dividends, it would be worth around £7,250. Put another way: shares can fall, dividends once paid are yours to keep.

If you were an investor during Black Monday, your portfolio's collapse could have been an awful. But, it is important to stay calm. Selling at the bottom is one of the worst things to do as it leaves another problem: choosing the right time to get back in. If you don't re-enter at the right time, or, worse still, don't get back in at all, you could end up losing twice.

Time and again it can be seen the best time to put your savings into shares is immediately after a crash. The crash of 2007 has been no different.

David Kuo is director of financial advice website fool.co.uk

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Suggested Topics
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Guru Careers: Software Developer / C# Developer

    £40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

    Neil Pavier: Management Accountant

    £45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...

    Sheridan Maine: Commercial Accountant

    £45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...

    Laura Norton: Project Accountant

    £50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...

    Day In a Page

    Abuse - and the hell that came afterwards

    Abuse - and the hell that follows

    James Rhodes on the extraordinary legal battle to publish his memoir
    Why we need a 'tranquility map' of England, according to campaigners

    It's oh so quiet!

    The case for a 'tranquility map' of England
    'Timeless fashion': It may be a paradox, but the industry loves it

    'Timeless fashion'

    It may be a paradox, but the industry loves it
    If the West needs a bridge to the 'moderates' inside Isis, maybe we could have done with Osama bin Laden staying alive after all

    Could have done with Osama bin Laden staying alive?

    Robert Fisk on the Fountainheads of World Evil in 2011 - and 2015
    New exhibition celebrates the evolution of swimwear

    Evolution of swimwear

    From bathing dresses in the twenties to modern bikinis
    Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

    Sun, sex and an anthropological study

    One academic’s summer of hell in Magaluf
    From Shakespeare to Rising Damp... to Vicious

    Frances de la Tour's 50-year triumph

    'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
    'That Whitsun, I was late getting away...'

    Ian McMillan on the Whitsun Weddings

    This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
    Kathryn Williams explores the works and influences of Sylvia Plath in a new light

    Songs from the bell jar

    Kathryn Williams explores the works and influences of Sylvia Plath
    How one man's day in high heels showed him that Cannes must change its 'no flats' policy

    One man's day in high heels

    ...showed him that Cannes must change its 'flats' policy
    Is a quiet crusade to reform executive pay bearing fruit?

    Is a quiet crusade to reform executive pay bearing fruit?

    Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
    The King David Hotel gives precious work to Palestinians - unless peace talks are on

    King David Hotel: Palestinians not included

    The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
    More people moving from Australia to New Zealand than in the other direction for first time in 24 years

    End of the Aussie brain drain

    More people moving from Australia to New Zealand than in the other direction for first time in 24 years
    Meditation is touted as a cure for mental instability but can it actually be bad for you?

    Can meditation be bad for you?

    Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
    Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

    Australia's first-ever Eurovision entrant

    Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine