Its Causes, And Timeless Lessons For Investors

Thirty-six years ago, something so unlikely happened that it was basically impossible: The Dow Jones Industrial Average plunged nearly 23 percent in a single day.

Before Monday, October 19, 1987 (now known as Black Monday), such a massive drop in the market wasn’t considered possible because statistics put such a decline at an impossibly rare twenty-two standard deviation event. How rare is a twenty-two standard deviation event? Writing about the drop in his 2000 book When Genius Failed, reporter Roger Lowenstein of the Wall Street Journal noted, “Economists later figured that, on the basis of the market’s historical volatility, had the market been open every day since the creation of the Universe, the odds would still have been against it falling that much in a single day. In fact, had the life of the Universe been repeated one billion times, such a crash would still have been theoretically ‘unlikely.’”