PERSPECTIVES
menacing Monday and Black Swans
John C. Bogle
T
he 20th anniversary of what came to be known as Black Mondayâ€"19 October 1987â€"provides a memorable platform for considering, yet again, the role of risk in our financial grocerys. On that single day, the Dow Jones Industrial Average dropped from 2,246 to 1,738, an awing decline of almost 25 percent, nearly twice the largest anterior daily decline of 13 percent. The 13 percent decline, which took home base on 24 October 1929â€"known as Black atomic number 90â€" proved to be a distant early ideal that the Great Depression lay ahead.1 From its earlier high in late August 1987 until the behave market at detain closed on that fateful Black Monday, some $1 trillion was erased from the total value of U.S. stocks. The stunning decline ball over nearly all market participants, although some veterans were not surprised. For example, Alan ( sense impression) Greenberg, former chairman of Bear Stearns Companies, was quoted in the newspapers as saying, So markets fluctuate. What else is new? And only a year before Black Monday, I observed to the Vanguard crew that even a 100-point decline in the Dowâ€"something that had n perpetually before occurredâ€"was possible. Why?
Because in the stock market, anything can go through. Not only can anything happen in the stock market, but anything does happen. What is more, changes in the nature and grammatical construction of our equity marketâ€"and a radical shift in its participantsâ€"are making shocking and unexpected market aberrations ever more probable. In fact, during 2007, we witnessed an unprecedented series of amazing market swings. Whereas in the 1950s and 1960s, the daily changes in the level of stock prices typically exceeded 2 percent only three or four times a
John C. Bogle is the founder and former head teacher executive of the Vanguard Group and president of Vanguards Bogle Financial Markets Research Center, Valley Forge, Pennsylvania.
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