The Garrulous Jay – Meltdown Revisited

This time 16 years ago the state of world stock markets was elegantly summarised by the Evening Standard’s headline for its 6th October edition (see photo below).

The global financial crisis was reaching boiling point: the entire system appeared to be falling apart and where and how it would end was anybody’s guess.

I found myself in the arguably unenviable position of working on the research floor of an investment bank covering the insurance sector. My role was to provide investment insights on the world’s publicly traded insurance companies to our clients: investment managers of various shapes and sizes.

So, to summarise, I was working for an organisation that was quite possibly bust, covering a sector whose companies were all quite possibly bust, talking to clients whose businesses were also quite possibly bust!

As the article beneath the Standard’s headline reports, by mid-afternoon on the 6th October the FTSE-100 index had fallen 430.59, or nearly 9 percent, in a single day. The fall was led by the banks, with Royal Bank of Scotland – once the world’s largest bank – dropping 21 percent as the paper went to print.

There was little be optimistic about, as there seemed to be no way out.

Sixteen years later and with the benefit of hindsight, we can once again reflect on what this teaches us. The FTSE-100 had fallen “to 4549.66 by mid-afternoon”… At the close of business yesterday it stood at 8385.13, 84% higher than it was that day.

Ultimately, concerted and coordinated government intervention was sufficient to save the day. Many fortunes were lost (and a few made), reputations incinerated, and countless people lost their homes, but the system survived.

The obvious lesson to draw from this saga is that it pays investors to hold steady when markets are falling, even if they’re falling a lot. To sell in a panic is to imply you will be able to spot the moment to buy again: it seldom works.

There were also some positives to emerge from the crisis: one of my favourite films, “The Big Short”, for example, and a fantastic book, “Too Big To Fail”, by Andrew Ross Sorkin for those seeking to explore the anatomy of a market bubble gone wrong.

The Evening Standard’s front page also reminds us that life goes on beyond the financial world… “Saatchi unveils new gallery in Kings Road”… “Can it get any worse for Spurs or Ramos”…

This serves as a useful reminder that sometimes it’s best to step away from the financial maelstrom and focus on something else instead – art or sport perhaps – until the storm has passed.

Apart from it being the anniversary month of the events of October 2008, this may seem like a strange time to write these lines. But I suspect readers will find it easier to agree with them now than the next time the proverbial hits the fan. If you share my suspicion, I suggest you print this and keep it somewhere safe in readiness for the next ventilatory impact.