Isle brokers recall not everyone
succumbed to the wave of panic
selling 10 years ago

By Russ Lynch
Star-Bulletin

IN one day 10 years ago, Honolulu investor Harry Weinberg lost more than $60 million in the value of the stocks he owned. What did he do about? He went out and bought more.

It was that sort of canniness that left an estate worth over a billion dollars when Weinberg died in 1990. And there is a lesson for all investors in that sort of reaction to what happened on "Black Monday," Oct. 19, 1987, island stock brokers and investment advisers say.

The lesson is, don't panic; look what equity investments have done over the long term.

"The one buyer that day was Harry Weinberg," recalls Paul Loo, senior vice president of Dean Witter Reynolds Inc.'s Pacific division.

For the individual investor, perhaps the biggest lesson was not to panic and to keep expectations at a reasonable, practical level. "No team ever wins a football game without its quarterback being sacked a number of times," Loo said.

Loo, who had been at a meeting of Dean Witter senior managers in Bermuda and had seen the Dow drop over 100 points on the Friday before Black Monday, said everyone was anxious. Back in his Honolulu office Monday morning, Loo was "greeted with a great fall" and saw the Dow Jones Industrial Average drop 508 points in a single day.

He sold nothing out of his personal portfolio, made up mostly of blue chip stocks, even though he lost "enough to buy a used private jet -- not a new one, but a used one."

Dean Witter had individual brokers cautioning clients not to dump everything, no matter how bad it looked, and some of them have been very happy about that. Within a couple of days, the Dow showed its highest single-day rise ever.

There were lessons to be learned. The markets themselves learned to put limits on program, trading, where computers automatically ordered massive buying or selling when the Dow moved a certain number of points.

There are always ups and downs: "I always tell people who can put $100,000 in blue chip stocks, do you want me to call you in a year and tell you it's worth $78,000?" Loo said. If you're not ready for that, you shouldn't make the investment, he said. At the same time, though, Loo's message is that those who buy and hold usually win.

William Lampe, resident vice president of Merrill Lynch Pierce Fenner Inc. in Hawaii, said people did learn.

"People saw that at that time that if they panicked they lost money. If they didn't panic, the market turned around," Lampe said.

Internationally, the Dow ranks 13th in importance among major market indicators, according to a recent study, Lampe said. There were better indicators 10 years ago, too.

"Other market indicators had already gone down while the Dow was still going up," he said.

That doesn't really matter, though, because the Dow is "still what people look at," Lampe said.

"The biggest difference between today and then was that interest rates (in 1987) had been rising for three or four months and the market had pretty much ignored that fact and woke up to it all at once," Lampe said.

"The environment is a little bit different today," with basically low interest rates, he said.

Lampe remembers Black Monday well. He was running the Merrill Lynch office on Omaha, Nebraska, at the time.

"We were the only office in town that had a running ticker tape. People came in to watch. The TV crews were there every day," he said.

He still has his "I survived Black Monday" lapel pin from those days.

"There are checkpoints now," Lampe said, referring to the controls in the markets that put things on hold when they start to go wild.

Gregg Robertson, president of Cadinha & Co. Inc. in Honolulu, said the crash 10 years ago was a really traumatizing event for a lot of people.

"The loss of an incredible portion of their portfolio value in such short order was a real blow to their psyches," he said.

"It left them in a state of confusion as to what they could trust or what they could believe in," he said.

Many of them, as a result, didn't make the right decision. "It drove a lot of them into short term bond investments as a safe haven. It did not serve them well in the future," he said.

Bonds did okay for five years but they slipped and a lot of people missed out on the equity markets' rise of the last two or three years. "If they had stayed the course with their equity investments, then their returns over the last 10 years would have been really outstanding," Robertson said.

Robertson was an investment banker in San Francisco then, doing mergers and acquisitions. The loss in share values made acquisitions a lot cheaper, he recalls. But the crash dealt a fatal blow to many business. It completely wiped out a friend's investment in a biotech business, Robertson said.