samedi 27 octobre 2012

Save Our Souls · · · — — — · · ·




Alimentation: les chiffres qui font peur

mercredi 17 octobre 2012 à 12h00
Malnutrition, gaspillages, obésité, flambée des prix, réduction des surfaces agricoles... A l'occasion de la journée mondiale de l'alimentation, retour sur les grands déséquilibres mondiaux.
© Reuters
L'ONU célèbrait ce mardi 16 octobre la journée mondiale de l'alimentation, à Rome. Durant une semaine, les experts vont tenter d'apporter des réponses à la faim dans le monde, aux gaspillages, à la flambée des prix agricoles... Mais les défis, en matière d'alimentation, paraissent gigantesques lorsqu'on regarde les chiffres.

La faim gagne à nouveau du terrain
"En matière de faim, le seul chiffre acceptable c'est zéro", martèle la directrice du Programme alimentaire mondial (PAM) Ertharin Cousin. Mais nous en sommes très loin. Avec la crise économique mondiale, la faim gagne à nouveau terrain après 20 années de repli. Selon l'ONU, 870 millions de personnes ont encore faim dans le monde. Ce chiffre continue notamment d'augmenter en Afrique et au Proche-Orient, où il a progressé de 83 millions en vingt ans. "Si on mesurait la malnutrition plutôt que la faim, non plus le déficit en calories mais celui en micro-nutriments essentiels au développement des enfants, comme l'iode, le fer, les vitamines, les chiffres seraient encore plus considérables: on passerait au moins à 1,5 milliard", estime le Rapporteur spécial de l'ONU pour le droit à l'Alimentation Olivier De Schutter.

Dans les pays riches, c'est l'obésité qui progresse
Le contraste entre les pays riches et les pays pauvres est difficilement supportable. Aux Etats-Unis, le taux d'obésité au sein de la population adulte atteint désormais 30%. Une proportion élevée, liée aux boissons sucrées, dont la consommation a plus que doublé depuis les années 70. La ville de New York interdit d'ailleurs depuis ce mois-ci la vente de portion "géante" de sodas et autres boissons fruitées sucrées dans les restaurants et cinémas. La France est touchée, elle aussi, par ce problème. Le surpoids et l'obésité touchent respectivement 32% et 15% de la population française âgée de plus de 18 ans.

Le gaspillage n'a jamais été aussi élevé
Dans les pays développés, 40% de la nourriture produite est gaspillée chaque année, selon un rapport de la FAO publié en 2008. La chaîne Canal + diffuse mercredi 17 octobre à 20h50 un documentaire qui revient sur cet immense gâchis. Selon l'auteur de ce documentaire, plus de 16 millions de tonnes de nourriture seraient jetées par les londoniens chaque année. Et bien souvent, il s'agit de denrées alimentaires encore comestibles. En France, le gaspillage annuel par foyer est évalué 20 kilos par an, soit environ 400 euros, contre 600 euros aux Etats-Unis et 300 euros au Japon. Mais les pays riches n'ont pas le monopole du gaspillage. L'Equateur, premier pays exportateur de bananes au monde, en gaspillerait "146 000 tonnes par an, soit quinze fois le poids de la tour Eiffel."

Le prix des matières premières reste incontrôlable
Depuis quelques années, le prix des produits agricoles s'emballe régulièrement. Au début de l'été dernier, les cours mondiaux des céréales affichaient des hausses de 30 à 50% sur un an. En février 2008, les hausses de prix étaient encore plus fortes : 84% pour les céréales et 58% pour les produits laitiers. A l'époque, le prix du blé avait atteint un record absolu, cotant à 295 euros la tonne sur le marché européen. Cette surchauffe sans précédent avait provoqué des émeutes de la faim dans plusieurs pays. l'Egypte, le Maroc, l'Indonésie, les Philippines, Haïti, Nigeria, Cameroun, Côte d'Ivoire, Mozambique, Mauritanie, Sénégal, Burkina Faso. Plusieurs facteurs expliquent ces flambées régulières : augmentation de la population mondiale, émergence d'une classe moyenne dans certains pays émergents, instabilité de l'offre sur le marché planétaire, concurrence croissante des agrocarburants qui réduit la surface des cultures de produits alimentaires, spéculation autour des denrées agricoles... Selon Action contre la Faim, "environ 100 millions de personnes supplémentaires sont devenues sous-alimentées suite aux hausses des prix alimentaires depuis 2008".

Des terres cultivables confisquées
Les superficies acquises depuis dix ans par des investissements étrangers dans les pays du Sud permettraient de nourrir un milliard d'humains, autant que de personnes souffrant de la faim dans le monde, assure l'organisation Oxfam. Or, "plus des deux-tiers des transactions étaient destinées à des cultures pouvant servir à la production d'agrocarburants comme le soja, la canne à sucre, l'huile de palme ou le jatropha", indique-t-elle jeudi dans son rapport "Notre Terre, notre Vie". Oxfam précise également que les superficies concernées équivalent à plus de trois fois la taille de la France, ou huit fois celle du Royaume-Uni, à 60% dans des régions "gravement touchées par le problème de la faim". Le phénomène atteint de telles proportions que dans les pays pauvres, "une superficie équivalant à celle de Paris est vendue à des investisseurs étrangers toutes les 10 heures". Au Liberia, sorti en 2003 de plus de 20 ans ans de guerre, "30 % du territoire national a fait l'objet de transactions foncières en seulement cinq ans" et au Cambodge, les ONG estiment que "56 à 63% des terres arables ont été cédées à des intérêts privés".

Les aides de plus en plus restreintes
"Depuis la crise alimentaire de 2007-2008, de nombreux pays ont renouvelé leurs engagements à éradiquer la faim dans le monde mais dans certains cas, les promesses sont restées lettre morte", déplorent les experts. Selon Luc Guyau, le président indépendant du Conseil de la FAO, la part des investissements agricoles dans le monde a plongé en vingt ans, passant "de 20% de l'aide totale dans les années 80 à 4% aujourd'hui". Les ONG s'alarment déjà, en ces temps de récession, d'une possible réduction de l'aide alimentaire. Ainsi l'Union européenne débat actuellement de la reconduction de son enveloppe de 3,5 milliards d'euros sur sept ans, qui pourrait être réduite à 2,5 mds pour la prochaine période 2014-2020, selon un conseiller européen. 

Biases ... by the Fool




Investing shouldn't be hard. Buy quality companies at good prices and hold them for a long time. Not much more to it than that.
Yet so many investors -- maybe most -- fail to beat a basic index fund.
Why?
Blame your brain. We come hardwired with all kinds of biases that cause us to misinterpret information and push us into regrettable decisions. Here are 15 of the biggest.
Confirmation bias   Starting with an answer, and then searching for evidence to back it up.
If you start with the idea that hyperinflation is imminent, you'll probably read lots of literature by those who share the same view. If you're convinced an economic recovery is at hand, you'll probably search for other bullish opinions. Neither helps you separate emotions from reality.
Berkshire Hathaway (NYSE: BRK-B  vice-chairman Charlie Munger is a fierce advocate of the intellectual strategy of Charles Darwin, who regularly tried to disprove his own theories, and was especially skeptical of his own ideas that seemed most compelling. The same logic should apply to investment ideas.
Recency bias   Letting recent events skew your perception of the future.
When we're in a bull market, you think it'll last forever. When we're in a recession, you think we'll never recover. After a banking crisis, you think another is right around the corner. Rarely is that actually the case -- it's usually the other way around -- but it's what feels right when memories are fresh in our minds.
Backfiring effect   When presented with information that goes against your viewpoints, you not only reject challengers, but double down on your original view.
Voters often view the candidate they support more favorably after the candidate is attacked by the other party. In investing, shareholders of companies facing heavy criticism often become fanatical, die-hard supporters for reasons totally unrelated to the company's performance.
Anchoring   Letting one piece of irrelevant information govern your thought-process.
Best example: Investors anchor to the idea that a fair price for a stock must be more than they paid for it. It's one of the most common, and dangerous, biases that exists. "People do not get what they want or what they expect from the markets; they get what they deserve," writes Bill Bonner. 
Framing bias    Reacting differently to the same information depending on how it's presented. Example:
"Google shares surge to highest level in five years."
"Google shares haven't gone anywhere in five years."
Both statements are true.
Skill bias   When education and training causes confidence to increase faster than ability.
The best example is the hedge fund Long Term Capital Management. Staffed thick with PhDs and two Nobel laureates, the fund exploded in 1998 under an incomprehensible amount of leverage. Behind the failure was raging overconfidence. "The young geniuses from academe felt they could do no wrong," Roger Lowenstein wrote in the book When Genius Failed.
Warren Buffett said this about firm's sixteen-person management team:
They probably have as high an average IQ as any sixteen people working together in one business in the country ... just an incredible amount of intellect in that group. Now you combine that with the fact that those sixteen had extensive experience in the field they were operating in ... in aggregate, the sixteen probably had 350 or 400 years of experience doing exactly what they were doing. And then you throw in the third factor: that most of them had virtually all of their very substantial net worths in the business ...And essentially they went broke. That to me is absolutely fascinating.
Hindsight bias   Out of literally millions, only a handful of investors truly saw the financial crisis coming.
If you disagree with that statement and respond, "No, any idiot could have seen it coming from a mile away," you're suffering from hindsight bias. Only after the fact do all the puzzle pieces make sense. That's why bankruptcies outnumber billionaires.
Pessimism bias   Underestimating the odds of something going right. Financial advisor Carl Richards writes:
We focus so much on protecting ourselves from negative surprises (job loss, disability, divorce, death .. the whole catastrophe) that we forget to factor in the positive ones (a raise, a business that works out, a new career, a new bull market) that can sometimes change our entire outlook.
Halo effect   "If we see a person first in a good light, it is difficult subsequently to darken that light," writes the Economist.
Mutual fund manager Bill Miller beat the S&P 500 for 15 years in a row -- one of the best track records ever. He became, and largely remains, an investment legend.
Yet Miller's flagship fund fell so hard over the last few years that his career-long track record just barely squeezed by an index fund. Jason Zweig of the Wall Street Journal wrote last year: "Over the full stretch since Mr. Miller became lead manager of the fund in 1990, he has gained an average of 9.39% annually, versus 9.14% for the S&P 500."
Does this hurt his reputation? Yes. But not as much as you might think. Despite a distinctly mediocre long-term record, I suspect Miller will always be remembered as a legendary investor.
Illusion of control   Thinking that your decisions and skill led to a desired outcome, when luck was likely a big factor.
If you've ever made money day trading and patted yourself on the back for a job well done, you're probably a victim of the illusion of control.
Escalation of commitment   The classic "throwing good money after bad."
Doubling down on a plunging stock, not because you believe in its future, but because you feel the need to make back losses. Happens all the time at blackjack tables, too.
Negativity bias   Assuming perpetual doom, that problems will never be fixed, and that all hope is lost.
This bias has been rampant for the last four years, and has caused many to forgo investing opportunities of a lifetime. 
Ostrich bias   Ignoring reality when it's screaming in your face, usually in an attempt to rationalize a certain viewpoint.
Great example: A recent survey of 1,000 investors showed an average of more than half of respondents said the market declined in each of the last three years. But it didn't. The S&P 500 rose 26.5% in 2009, 15.1% in 2010, and 2.1% last year. Pessimism trumped reality.
Risk perception bias   Attempting to eliminate one risk, but exposing yourself to another, potentially more harmful, risk.
Here's an example I've written about before: In the year after 9/11, air travel fell, and car travel jumped. Understandably, people suddenly felt planes were more dangerous than cars.
But statistically, the opposite is true. In his book The Science of Fear, Daniel Gardner notes that if there were a 9/11 every day for an entire year, the odds that you'd be killed by terrorists are one in 7,750. By comparison, the annual odds of dying in a traffic accident are one in 6,498. German professor Gerd Gigerenzer estimates that the increase in automobile travel in the year after 9/11 resulted in 1,595 more traffic fatalities than would have otherwise occurred. Add in the impact stress had on our health, and the reaction to 9/11 may have been more deadly than the attack itself. "People jump from the frying pan into the fire" said Gigerenzer. 
Today, an untold number of investors are choosing the perceived "riskless" safety of bonds trading at record high valuations, because they don't want the risk of volatile stocks. Ten years from now, there's an uncomfortably high chance they will be victims of risk perception bias. From the frying pan of stocks right into the fire of bonds. 

vendredi 26 octobre 2012

1987 by Jonathan @ MarketWatch



Jonathan Burton
Oct. 18, 2012, 12:28 p.m. EDT

Best time to buy stocks? After a market crash

Commentary: Old Masters of Wall Street teach the art of investing



By Jonathan Burton, MarketWatch
The mother of all modern manias, the Tulip mania saw prices for fancy tulip bulbs soar to prices many times a skilled artisan’s annual income. A Satire on the Folly of Tulip Mania by 17th Century Flemish painter Brueghel the Younger is a clear indictment against mindless speculation.
SAN FRANCISCO (MarketWatch) — Wall Street has never been a market for old men — or women — but when the going gets tough, the graying veterans get the 3 a.m. call for help.
Today’s stock-market gurus were 25 years younger on Oct. 19, 1987, when they learned a painful lesson in the throes of a full-blown investor panic. The Dow Jones Industrial Average DJIA +0.02% lost almost a quarter of its value that day — its worst single-session percentage drop ever. “Black Monday” conjured fears of that other October crash almost 60 years earlier, which ushered in the Great Depression.

The five greatest market crashes

In October 1987, Wall Street saw its biggest one-day percentage slide ever. MarketWatch's Christopher Noble and David Weidner take a look at what happened then and in other market crashes throughout history. (Photo: AP)
In fact, the day after Black Monday was a terrific time to buy stocks.
A $10,000 stake in the 30 Dow stocks on Oct. 20, 1987 would be worth more than $137,000 now, according to investment researcher Morningstar Inc. That’s an 11% annualized return, including dividends, and even factoring in shareholders’ “lost decade” between 2000 and 2010.
But buying at points of maximum pessimism takes steel nerves most investors don’t have. Few of us could readily follow Baron Nathan Rothschild’s famous dictum to “buy when there’s blood in the streets — even if it’s your own.” Fear and doubt, in our own lives or caroming off of global, large-scale events, are powerful and limiting emotions. Read more: David Rosenberg on how to protect your money from the next stock crash.
So how do you take the plunge after a plunge?
The old Masters of Wall Street: how well they understood — and still do. Market pros see the wisdom in Warren Buffett’s admonition, channeling his mentor Benjamin Graham, to “be greedy when others are fearful, and fearful when others are greedy.”Read more: Warren Buffett's winning ways, 50 years on.
They realize, as the revered market analyst Bob Farrell noted in his famous “Market Rules to Remember,” that there’s money to be made given that “fear and greed are stronger than long-term resolve.” Read more: 10 investing rules tailored for a tough market.
REVISITING THE 1987 STOCK MARKET CRASH


10 lessons from the market crash of 1987
The more things change, the more they stay they same, except they happen a lot faster now. Here’s some wisdom from investors who were in the trenches 25 years ago when the stock market saw its biggest one-day percent drop.

See: More tips for market downturns:

• How do you take the plunge after a plunge?
• Stock crashes are money-making opportunities 
• David Rosenberg: Protect your money 
• Another crash like in October 1987 is inevitable
• The next market crash will be tweeted
• Crash memories aren’t what you’d expect
• Crash of 1987 takes investors back to the future
• The 10 greatest market crashes 
• 'Black Monday,' from those who were there 

• How another market crash could unfold 

• 
Take our poll: Do you expect another crash?
They heed the advice of the late Sir John Templeton, the legendary stockpicker, who included “Do not be fearful or negative too often” among his “16 Rules for Investment Success.” Read more: Templeton's 16 rules.
And they respect Jack Bogle, founder of the Vanguard Group and the patron saint of the individual investor, who has said time and again that “investors win and speculators lose.” Read more: Bogle: Forget trading and start investing.

All shook up

After the market closed on Oct. 19, 1987, it was easy around lower Manhattan to recognize who worked on Wall Street: they looked ashen and shocked. Yet a few investors read the situation differently. The next morning they arrived at their offices with wallets open. Read more: Jim O’Shaughnessy says market drops create money-making opportunities for stock buyers.
Templeton was one of them. “Let’s find stocks to buy” was his reaction to the crash, recalled Martin Flanagan, now chief executive of mutual-fund firm Invesco Ltd. and then the chief operating officer of Templeton’s firm.
“Today you could see that was an obvious thing to do,” Flanagan recounted in an obituary of Templeton in July 2008. “At the time it was not obvious at all. To have that kind of conviction and leadership is absolutely unique.” Read more: John Templeton, a pioneer investor.
Most of us, in contrast, would be inclined to sell on the cheap during downturns and hold tight when prices are expensive.
“In fearful times, people think that returns will be low and risk is high. In times of exuberance, people think that returns will be high and risk is low,” said Meir Statman, a finance professor at Santa Clara University in California.
Statman added: “First, understand this is a natural emotion. Second, find ways to counter it. You have to be a contrarian with your emotions. If your emotions say put it all in gold, you should have another voice — a voice of reason — saying if gold is so good, the price must be reflecting that.” Read more: Why another stock crash like 1987 is inevitable.

Michael Belkin predicts 40% stock market drop

Hedge Fund Consultant Michael Belkin spoke at The Big Picture conference, predicting a 40% stock market drop in the coming 12-15 months.
Easier said than done. What in someone’s wiring allows them to override the instinct to run from danger, and to give up a seat at the table when everyone else is eager to play?
Statman ventures that its helpful for investors to think like traders, who tend to see the big picture. They realize that one bad day in the market isn’t going to wipe them out, so they regroup and get back on the horse.
“Losses are part of what you are going to experience,” Statman said. “It’s not the end of the world.”
Behavioral studies show that people with such an attitude don’t have as much loss aversion — our strong preference to avoid losses even more than make a gain. “They know that not every decision is going to be a winning decision, but they ask themselves, What is a smart decision?” Statman said. “If they continue to make smart decisions, then luck is going to average out.”
Big scores after tumultuous events can also iron out a lot of misses.
“Opportunities to make fortunes usually come in times of greatest dislocation,” said Soo Chuen Tan, a managing member of investment firm Discerene Value Advisors in Stamford, Conn. “You can train yourself to look for dislocations and read all the material on value investing and see the returns one can get if one invests at points of maximum pessimism.
“But that only takes you part of the way,” Tan added. “An important element of value investing is psychological temperament. You either ‘get’ it in your gut, or you don’t. When you read a headline about Greece blowing up, do you think, ‘Where’s my cash and can I move it to a safer bank account?’ Or do you say ‘When’s the next plane out to Athens?’”


Mark @ MarketWatch about 1987




Mark Hulbert
Oct. 17, 2012, 8:35 a.m. EDT

Another stock crash like 1987’s is inevitable

Commentary: Investors are beholden to big traders’ whims









By Mark Hulbert, MarketWatch
CHAPEL HILL, N.C. (MarketWatch) — Prepare yourself for another stock market crash as big as the free fall in October 1987.
That’s a daunting prospect indeed, since at current levels such a decline would mean the Dow Jones Industrial Average DJIA +0.02% would plunge by more than 3,000 points in a single trading session.

Michael Belkin predicts 40% stock market drop

Hedge Fund Consultant Michael Belkin spoke at The Big Picture conference, predicting a 40% stock market drop in the coming 12-15 months. Belkin joins MarketWatch’s Sam Mamudi to discuss his case for a market drop.
And we’re kidding ourselves if we think that market regulatory reforms such as circuit breakers will be able to prevent it.
These sobering truths are what emerge from a fascinating line of recent academic research into the frequency of market crashes. Recognizing them is perhaps the best way for us to respect this week’s 25th anniversary of the Oct. 19, 1987 Crash, when the Dow plunged 22.6%.
This research traces to “A Theory of Large Fluctuations in Stock Market Activity,” a study conducted a decade ago by Xavier Gabaix, a finance professor at New York University, and three scientists at Boston University’s Center for Polymer Studies: H. Eugene Stanley; Parameswaran Gopikrishnan, and Vasiliki Plerou. ( Click here for a copy of the study. )
In numerous follow-up studies, Professor Gabaix said in a telephone interview earlier this week, the original findings have only been strengthened.

No way to stop losses

The researchers derived a complex mathematical formula for predicting the frequency of large daily stock market movements. Though they believe that their formula rests on a solid theoretical foundation, the proof of the pudding is in the eating. And they found that not only does the U.S. stock market over the last century closely adhere to the formula, so do international markets.
REVISITING THE 1987 STOCK MARKET CRASH


10 lessons from the market crash of 1987
The more things change, the more they stay they same, except they happen a lot faster now. Here’s some wisdom from investors who were in the trenches 25 years ago when the stock market saw its biggest one-day percent drop.

See: More tips for market downturns:

• How do you take the plunge after a plunge?
• Stock crashes are money-making opportunities 
• David Rosenberg: Protect your money 
• Another crash like in October 1987 is inevitable
• The next market crash will be tweeted
• Crash memories aren’t what you’d expect
• Crash of 1987 takes investors back to the future
• The 10 greatest market crashes 
• 'Black Monday,' from those who were there 

• How another market crash could unfold 

• 
Take our poll: Do you expect another crash?
A single-session drop of at least 20%, for example, is predicted — over long periods — to occur once every 104 years, on average, but it could happen at any time. That’s why you always have to prepare for it, because you don’t know when it will occur.
If the frequency of crashes of various magnitudes is predictable, shouldn’t precipitous slides also be preventable?
Professor Gabaix says “no.” Crashes are an inevitable feature of the investment arena because every market, to a more or less similar degree, is dominated by its largest investors. When those large investors collectively want to get out of stocks, which will happen on occasion, they will find ways to circumvent myriad downside protections such as circuit breakers that may be in place.
Profession Gabaix therefore recommends that all of us — whether individuals or large institutional investors, such as banks and mutual funds — cushion our portfolios so that a crash as large as 1987’s won’t be fatal.
Unfortunately, he added, for most investors that’s easier said than done. Those cushions are a drag on portfolio performance as long as the market doesn’t plunge. After big stretches in which no major crash occurs, the pressure becomes overwhelming to toss out those cushions in pursuit of short-term profits.
The bottom line? Regulators are tilting at windmills in trying to formulate reforms that would prevent large daily market drops. Even worse, these regulatory efforts lull gullible investors into a false sense of security.
Repeat after me: Another stock market crash as big as 1987’s is going to happen. Period.

jeudi 25 octobre 2012

1987 @ MarketWatch




Oct. 19, 2012, 9:02 a.m. EDT

10 lessons from the market crash of 1987

The more things change, the more they stay the same — except computers are faster



By Wallace Witkowski, MarketWatch

October 1929. THE stock market crash. Highly leveraged investors saw fortunes melt in minutes as the roaring 20s gave way to the Great Depression. The crash of October 1987 conjured fears of another Great Depression, but instead stocks recovered.
SAN FRANCISCO (MarketWatch) — Twenty-five years ago, on Oct. 19,1987, the Dow Jones Industrial Average plunged almost 23%, its largest one-day percentage-point drop ever. While the crash didn’t usher in another Great Depression, it did introduce investors to a new era of stock-market volatility.
Even though market controls, such as circuit breakers introduced after the “flash crash” of May 6, 2010, are designed to avoid another crash like Black Monday, markets are still susceptible to severe and prolonged downturns.

REVISITING THE 1987 STOCK MARKET CRASH


10 lessons from the market crash of 1987
The more things change, the more they stay they same, except they happen a lot faster now. Here’s some wisdom from investors who were in the trenches 25 years ago when the stock market saw its biggest one-day percent drop.

See: More tips for market downturns:

• How do you take the plunge after a plunge?
• Stock crashes are money-making opportunities 
• David Rosenberg: Protect your money 
• Another crash like in October 1987 is inevitable
• The next market crash will be tweeted
• Crash memories aren’t what you’d expect
• Crash of 1987 takes investors back to the future
• The 10 greatest market crashes 
• 'Black Monday,' from those who were there 


• How another market crash could unfold 

• 
Take our poll: Do you expect another crash?

U.S. stock prices are close to the record highs achieved five years ago, before the housing and financial crises decimated them. The Dow DJIA +0.28% is near its all-time high of 14,164.53. Similarly, the Standard & Poor’s 500-stock IndexSPX +0.36% is approaching its all-time high of 1,565.15. The ascent to a potentially new peak, however, is coming up against a potential bout of volatility that’s expected with the November elections and the economy’s “fiscal cliff” of government spending cuts and tax hikes in January.
With that in mind, MarketWatch polled several money managers who witnessed Black Monday about lessons from 1987 that are relevant to investors today.

1. Stay objective when others get emotional

In order to keep cool when the rest of the world is falling apart, investors need to have confidence in their portfolio choices, because success depends on surviving the market’s worst, said Peter Langerman, president and CEO of Franklin Templeton’s Mutual Series funds.
Langerman, who started with Heine Securities Corp., the predecessor to Franklin Mutual Advisers, in 1986, said today’s high-frequency trading algorithms are not too different from the herd mentality that spooked investors on Oct. 19, 1987.
“One of the basic messages is you’re never going to be right all the time and things can go wrong, so you have to have the confidence that your investment portfolio can stay intact to sustain yourself through illogical times,” Langerman said.

2. Be like Buffett: Buy on the fear, sell on the greed

While Black Monday made it into the record books, crashes are fairly common throughout history, said Charles Rotblut, vice president at the American Association of Individual Investors. See slideshow of the 10 greatest market crashes.
“One of the big things you realize is that if you just stick with the long-term portfolio you’ll be okay,” Rotblut said, noting that after 1987, large-cap stock prices rose about 12% in 1988, and about 27% in 1989.
Investors who used the crash as a buying opportunity took full advantage of those recoveries, Rotblut said.

3. Make a crash shopping list

To take advantage of bargains in a downturn, don’t wait until the market tanks to decide what you want.
Make a list of companies you’d like to own if they weren’t so expensive, said Marty Leclerc, principal at Barrack Yard Advisors, who was a young branch manager at brokerage Dean Witter 25 years ago.
“Use that extreme volatility to your advantage,” Leclerc said. He mentioned Nike Inc.NKE -1.07% as a prime example. In the two trading sessions on Oct. 19 and Oct. 20, 1987, Nike shares fell to 94 cents from $1.27, a total decline of 26%. The stock recovered to pre-crash levels by late January 1988, and 25 years later trades at close to $100 a share.
Stocks on Leclerc’s shopping list nowadays include financial exchange operators and global agriculture proxies ranging from fertilizer makers to bioseed companies.

4. What goes up fast comes down faster

“Any kind of model that purports to make a lot of money in stocks is doomed to failure,” said economist Gary Shilling, president of A. Gary Shilling & Co.

The 5 greatest market crashes

In October 1987 Wall Street saw its biggest one-day percentage slide ever. MarketWatch's Christopher Noble and David Weidner take a look at what happened then and in other market crashes throughout history. (Photo: AP)
The crash of 1987 was a big one-day correction to a stock market that had spent the first half of the year gaining momentum, Shilling said.
As many of the managers interviewed noted, one of the big causes of the crash was a strategy called “portfolio insurance,” which was designed to limit losses by buying stock index futures in a rising market and selling them in a declining market.
The problem with such schemes, Shilling explained, is that when they become widespread, they no longer reflect the fundamentals upon which they were first modeled. When plugged into programmed trades, the compromised system is overwhelmed and prone to crash.

5. There’s no such thing as ‘it can't happen’

One statistician told Ted Aronson, who founded institutional investment firm AJO in 1984, that the 1987 crash was a 25-sigma event, or 25 standard deviations away from the mean. In other words, a virtually impossible occurrence.
The problem with this thinking is that the virtually impossible happens all the time. See Mark Hulbert's column on the inevitability of another crash.
“We think as humans, we identify patterns and trends when there’s a whole craziness going on in the market that’s more akin to ‘The Twilight Zone,’” Aronson said.

Remembering Black Monday crash of 1987

Francesco Guerrera and former SEC chairman David Ruder discuss his memories of the stock-market crash of 1987, and Chuck Jaffe says that while the stories of the crash are fresh, the actual losses have been forgotten.
The best advice Aronson has for investors is to not get lost in fads, keep costs down, and diversify assets.

6. Tune out the daily noise

Corrections of 10% are common and typically happen about three times a year, said Bob Pavlik, chief market strategist at Banyan Partners.
Pavlik, who started as an assistant portfolio manager with Laidlaw, Adams and Peck in 1987, said he does not think shareholders have learned many lessons in the past 25 years. Investors still panic during corrections and forget that they are part of the market’s ongoing contraction and expansion cycle. Read more: Jack Bogle: Forget trading; start investing.
“If you focus on the details, you can lose out on the big picture,” Pavlik said. Then, he added, “you lose out on those cycles that will help you,”.

7. Don’t bail

After Black Monday, an army of economists warned that the financial world was coming to an end, said William Braman, Chief investment Officer at Ballentine Partners. Investors who believed them missed out.
Braman, who was focused on large-cap domestic growth portfolios at Baring Asset management in 1987, said investors need to position their portfolios to shoulder daily and weekly volatility.
“You’ve got to stay focused long-term and not get wigged out by the short-term noise,” Braman said.
Roy Diliberto, who founded RTD Financial Advisors in 1983, echoed the sentiment.
“The problem with bailing out is you never know when to get back in,” Diliberto said.

WSJ reporters of two generations on the 1987 crash

Wall Street Journal reporters E.S. Browning and Steve Russolillo join Markets Hub for a cross-generational analysis of the 1987 stock-market crash.

8. Don’t use the calendar to rebalance your portfolio

If you rebalance your portfolio quarterly or annually, shedding winners and scooping up losers, you may want to rethink that practice.
Diliberto said improved portfolio management software allows investors to rebalance their portfolios in accordance to market events, or what he calls “opportunistic rebalancing.”
“In 2009, we were overweight in bonds and went into asset classes that we were underweight in, and we got to break-even before people who had just stayed the course,” he said.

9. Bet with your head, not over it

Margin calls fueled the fire in October 1987, according to managers who lived through the crash.
And even though margin requirements have been tightened since, individual investors should avoid it, said AAII’s Rotblut.
The only margin call the individual investor should care about is an opportunistic one — such as when hedge funds have to sell on the cheap to cover their bets, putting downward pressure on prices and creating bargains, Barrack’s Leclerc said.

10. Investors face greater risk now

In 1987, portfolio insurance and program trading threatened the orderly functioning of the financial markets. Today, high-frequency trading algorithms move massive volume in microseconds and amp up volatility.
That sort of risk, as evidenced in market gyrations since 2000, has damaged retail investors’ appetite for stocks, according to Jeff Applegate, chief investment officer of Morgan Stanley Wealth Management.
Also, the rise of technology and widespread online trading has made individual investors more vulnerable to knee-jerk trades, without the benefit of a broker or pension plan manager talking them off the ledge, Rotblut said.
But as technology makes it easier for investors to go it alone without traditional guidance, volatility can create anxiety and make investors vulnerable to fads and higher fees.
“Investors are more exposed to risk now,” said AJO’s Aronson. “There are more opportunities to lever investment ideas, to amplify investment ideas, and more ‘advances’ that have given investors more opportunities to pick their own pockets.”
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Wallace Witkowski is a MarketWatch news editor in San Francisco.