The Disconnect

It was 31 years ago, on Monday October 19th 1987 that the world discovered a new problem. It started as an anticipated stock market crash in Hong Kong, the result of a fairly obvious bubble. But it did not stop there. Within hours, exchanges opened up in the morning already down and panic pushing them lower, all around the world.

It was eventually blamed on “program trading” or automatic sell-offs directed by computers. Circuit breakers were put in place to stop it, and that was that. But it was the first sign that equity markets had become truly global and had much less to do with global conditions than everyone thought.

The lessons from this are much deeper than program trading, but they are much harder to learn.

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