The market fed off its own statistics

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The Independent Online
There have been many corrections to stock market prices during my City career but only two crashes. The first came in 1974, the second in 1987. The former was more devastating economically.

Prices had already halved from their 1972 peak by the summer of 1974. They then halved again during the second half of that year. The financial viability of many City institutions was called into question. Shares became dramatically undervalued but confidence was slow to restore and, although prices rose in 1975, the economy and the market drifted sideways for five years.

The crash of 1987 was not as damaging but was more spectacular. The speed of the price collapse was stunning. The fall in the New York stock market on 19 October 1987 was the largest one-day percentage change in stock prices since records began. Such unprecedented changes caused significant trading losses, but the viability of financial institutions was not threatened as in 1974.

Coming so close after Big Bang, which brought additional capital and greater competition to the London market, the financial effects were absorbed reasonably well.

It was an uncomfortable time but the London markets remained open when others imposed trading restrictions orclosed down. New players in the London scene were reluctant to answer their telephones. The spirit of the old London jobbing firms embodied by my new colleagues from Wedd Durlacher shone through. They continued making prices despite considerable uncertainty and the knowledge that significant trading losses had already been incurred.

Private client investors were nervous. The memories of 1974 were still vivid but some were new to the game, having been enticed by privatisation offerings and tax incentives (PEPs).

The institutional investors appeared to be ready to take advantage of prices more in line with fundamental values.

But my overriding memory was the way the market fed off itself. There was less interest in the economic indicators than in the market statistics. The balcony overlooking BZW's dealing floor was crammed with representatives of the world's press. This was the first occasion after Big Bang when the City was headline news.

Our dealers became familiar faces as every news bulletin focused on the market's latest moves. The pictures of dealers looking at screens did not convey the tensions individuals were experiencing. For manydealers this was their first experience of a crash. If history is any guide it may not prove to be their only experience.