Interesting account of a trader during the 1987 crash…..
By Daniel at 22 October, 2009, 4:25 pm
With the orgy of recollections about the 1987 stock market crash on the 22nd anniversary yesterday, I suppose I should throw in my two cents worth. I was in Paris visiting Morgan Stanley’s top banking clients, who then were making a major splash in Japanese equity warrants, my particular area of expertise. I was escorting around our Tokyo economist, David Gerstenhaber, now a noted hedge fund manager, who waxed on bullishly about the long term prospects for the Japanese economy. When we walked into our last appointment, David casually asked how the market was doing (Paris is six hours ahead of New York). We were told the Dow was down 300. Stunned, I immediately asked for a private conference room so I could call the equity trading desk in New York to buy some stock. A woman answered the phone, and when I said I wanted to buy, she burst into tears and threw the handset down on the floor. Redialing found all transatlantic lines jammed. I never bought my stock, nor found out who picked up the phone. I grabbed a taxi to Charles de Gaulle airport, and flew my twin Cessna as fast as the turbocharged engines would go, breaking every known air traffic control rule. But by the time I got back to London, the Dow had closed down 512. Then I learned that George Soros asked us to bid on a $250 million blind portfolio of US stocks after the close. He said he had also solicited bids from Goldman Sachs, Merrill Lynch, JP Morgan, and Solomon Brothers, and would call us back if we won. We bid 10% below the final closing prices for the lot. Ten minutes later he called us back and told us we won. How much did the others bid? He told us that we were the only ones who bid at all. Scrotums tightened throughout the firm. The next morning the Dow continued its plunge, but after an hour managed a U-turn, and ensued on a monster rally that went on the rest of the year. We made $75 million on that one trade. It was the worst investment decision I have seen in the markets in 35 years, executed by its most brilliant player. Go figure. Maybe it was George’s risk control discipline kicking in. At the end of the month, we then took a $75 million hit on our share of the British Petroleum privatization, because Margaret Thatcher refused to postpone the issue, giving Morgan Stanley’s equity division a flat P&L for the month of October, 1987. I think I sweated off five pounds that day Even now, I refuse to gas up at a BP station, no matter how green it is.
- Contrarian01
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