Sudden stock drop haunts

<p align="justify">It was the second worst single-day decline in the history of the stock index - and the worst one not prompted by a market shutdown.

<p align="justify">It was Black Monday, a stock exchange meltdown that saw the Dow Jones industrial average dive 22.6 percent after four years of runaway gains. And it was 20 years ago today.

<p align="justify">Since that day on Oct. 19, 1987, the stock exchanges have instituted safeguards to prevent precipitous one-day drops. But nothing prevents a weeklong run of drops day after day - not unlike the much less calamitous decline this summer. And like the investors of 20 years ago, human beings today aren't fundamentally different.

<p align="justify">"The markets in the short run, they're extremely emotional," said Brent Brodeski, managing director at Savant Capital Management. "When you look at any given day, any given week, it's 80 percent emotion, 20 percent logic. In the long run, though, it's 95 percent logic, 5 percent emotion."

<p align="justify">Local investment advisers say long-term, diversified investors - people saving for retirement or children's college - have little to worry about with market fluctuations because losses are only realized at sale. It's the institutional investors, the hedge funds, unbalanced investors that get battered by major swings in the market like Black Monday.

<p align="justify">Investors saving for the long term aren't the ones that move stock prices, it's the speculative traders and banking houses trying to make a quick return that do, Brodeski said. And when the huge investment firms get beat up by a downturn - like the subprime mortgage meltdown - they affect the rest of the market because they're marginally invested all over.

<p align="justify">"What we do is pretty boring comparatively," Brodeski said. "We're buy and hold. We're not using leverage. It's very transparent."

<p align="justify">In the case of Black Monday, many analysts blamed "program trading," a practice of using computers to track prices and engage in arbitrage, for aggravating the downturn. Computers play an even greater role in stock markets now, but there are more safety measures to arrest trading when it hits a downward spiral and to prevent the automatic selling that erodes prices.

<p align="justify">Bruce Vandegrift, senior vice president for AMCORE Investment Group, was managing money for another bank on Black Monday. Advisers felt the anxiety, watching the stock tickers and monitoring trades all day, but many investors didn't find out about the crash until the evening news, he said.

<p align="justify">So it was the next day that many advisers had to talk their clients out of dumping stock in a panic.

<p align="justify">"What keeps the markets up is the same thing that keeps the Wallendas up on the high wire, a sense of confidence and balance," Vandegrift said. "Once you lose that confidence, you tumble."

<p align="justify">While there are more safety measures in place, local market watchers say a decline like Black Monday isn't out of the question.

<p align="justify">Contrary to popular imagination, the largest single-day decline in the Dow Jones wasn't the historic crash of 1929 that ushered in the Great Depression. That downturn played out over several days. The largest one-day drop was a 24.3 percent decline on Dec. 12, 1914, the first day the stock exchange opened after a four-month closure at the advent of World War I.

<p align="left">Staff writer Nate Legue can be reached at 815-987-1346 or nlegue@rrstar.com.