“I’ll always remember where I was when…” That’s the beginning to a sentence that is generally reserved for some pretty important occurrences. I don’t remember, I’m not old enough, but I think the first time I ever heard that sentence was people discussing President Kennedy getting shot. Man lands on the moon. Challenger space shuttle blows up. And this week? We’re all discussing (I don’t think reminiscing is quite the right word) where we were, what we were doing when the stock market crashed on “Black Monday.” We’re not just remembering where we were for an event, we’ve coined a name for an entire day around this one.

And it really is a pretty deserving day. The Dow was down 22.61%. That’s almost a quarter of its value! Today, October 19, 2017, the Dow Jones Industrial Average closed at 23,164 and change. To match Black Monday, the Dow would need to lose almost 5,100 points tomorrow. It wouldn’t be a Monday, but that’s not really the point. Imagine how lousy your weekend would be if it started Saturday with the Dow Jones Industrial Average at a little over 18,000. And when it happened on a Monday, people had to go back to work the next day!

I was not yet a full time trader, but I was close. It was just over a month later that I began trading futures in the Gold pit on the Commodity Exchange (COMEX). I sold all my stocks shortly before the crash in order to have liquid assets to begin my trading career. Many a trader has uttered the phrase, “Better lucky than smart.” I’m one of them. And so as a bit of a shock to my young, enthusiastic, and of course optimistic self, I watched the major index that people at the time used as a large measure of their worth, erase almost a quarter of its value. Yes, I remember where I was when…

But what does that have to do with today? Can’t happen again. After all, in percentage terms, that day was a 76% larger loser than the beginning of the even more famous Crash of 1929. It is easy to argue that one was actually worse, because though the Dow “only” lost 12.82% in a day back in 1929, it lost another 11.73% the next day. If it had happened in just one day? It would have been just over 23%. And this actually brings me to the point.

I watched and listened today as the anniversary was discussed. The overwhelming sentiment seemed to be it’s an “outlier,” a statical anomaly. After all, the next worst day wasn’t even close. Remember? Over 22% vs. under 12%. This is one of those occurrences that you just happened to be alive for…statistically speaking. Chances are actually that multiple generations in your family won’t see such a day. At least that’s what statistics tell us. Even Introduction to Statistics covers this much. In an earlier blog I brought up the supposed unlikelihood of a 6 sigma move, or 6 standard deviations from the mean. And I’ve brought up Black Swans. But Black Monday was a move of more than 20 Standard Deviations! I can’t even imagine how many decimal places that is.

On top of that enormity of the event, we’ve got all sorts of circuit breakers. What could happen? We’ve made it so much harder to melt down than melt up (Yes, “melt-ups” happen…do we need to go into bitcoin and ethereum again?). But we had mechanisms in place back then to insure that you wouldn’t lose 25% of your money in one day. In fact, that’s what it was called at the time, “Portfolio Insurance.” It was the idea of buying options as ‘insurance’ against a big move against you in the overall market. Didn’t help most people.

And it wasn’t all that long ago we had the “flash crash.” Also previously covered. And now we’ve put in place systems to, hopefully, stop that from happening again. Unfortunately to me, this sounds much like crime or computer viruses. We always play catch-up. Not intentionally. We’re naturally a step behind. Successful criminals exploit flaws in the legal system, or some other system, to act in ways that were never anticipated. That’s why they’re successful. They think in ways we previously hadn’t. Unfortunately, we’ve found this to be the playbook of terrorists as well.

And so it is in the markets. We react. Something happens and we plug the “hole.” Like the proverbial finger trying to stop a leak in the dike. Another one opens. Think back to the recent “Great Recession.” Those evil bankers invented products that were destined to fail and they did. However!…and this is important…it’s difficult to contend that what they did was illegal, outside of fiduciary duty anyway. What they did was their job, or at least as they perceived it. We can discuss the problem with that on a moral basis, but in the end, their job was to make money without breaking the law. And after they did, we made some new laws. Same thing a couple of years later. Flash crash. High frequency trading. Etcetera. A group exploits the system as it’s built, and then we change the system.

I don’t know what we’re going to blame the next time. Maybe it’s ETF’s. There’s a nice false sense of security. Or cryptocurrencies, once we’re all “lucky” enough to have easy access. Maybe a cryptocurrency ETF and then we can make 2 new sets of rules. But something will happen.

While I don’t mean to be repetitive, I do realize that the theme of this blog in ways is very similar some previous ones. But that is kind of the point. Certain things in markets need to be reinforced. Over and over and over again. Mistakes that you promise to only make once, until you make the same one again. If you’re lucky, the second time will be the last. More often, we do it at least once or twice more than that.

When I teach, the most important thing I ever ask anyone to learn is the importance of discipline. In my 10 rules of trading, Discipline ranks #1; and Remember Rule # 1 rounds out the list. And the discipline we need in trading and investing is to never get too comfortable. Because it’s not just those who forget history that are doomed to repeat it. In markets, there’s always another shock of some sort coming. And then we get to make new rules again. And so on…