Black Monday Memories Help to Avert Panic

They sported thick skins and took deep breaths, chomped antacid tablets and blamed it on the date: Friday the 13th. But above all, they managed to make it through the second stock market crash in as many years without panic.

For when the Dow Jones Industrial Average dropped 190.58 points Friday afternoon, Southland investors and brokers were fortified by experience gained from Black Monday--Oct. 19, 1987.

“I’m not going to jump off the 26th floor of the One Wilshire Building,” quipped Carl Shusterman, an immigration lawyer whose few over-the-counter stocks lost little ground.

“None of our clients are panicking,” said Jeffrey Kilpatrick, president of Newport Securities in Costa Mesa.

“People should remember that, in retrospect, the best thing anyone did in that situation was buy,” Kilpatrick said of 1987. “The investors who sold lost it all, and those who did nothing didn’t gain much. Situations like this create more opportunity than problems.”

The plunge was reminiscent of another Bad Friday, this one Oct. 16, 1987. That day, the stock market dropped more than 100 points, rattling investors over a tense weekend and setting the market up for its 508-point fall three days later.

Brokerage houses throughout the Los Angeles Basin reported increased business and heavier-than-usual telephone traffic Friday. But, because the fall began late in the trading day, many investors did not hear the news until after the stock market closed.

Business was up only about 10% compared to a normal Friday at Fidelity Investments, a Boston-based mutual fund manager and discount brokerage. And the mood among investors? Much less panicky than two years ago, said Neal Litvack, vice president of marketing, in a telephone interview from Boston.

“The tone of the people calling is much less of a knee-jerk reaction,” he said. “People are feeling that they’ve been there before. People are feeling OK” because they know the market recovered from its last bruising.

To handle customer concern, Fidelity is opening its 53 branch offices--four of which are in Southern California--on Saturday and is putting extra employees on its 24-hour phone banks.

Officials at the Pacific Stock Exchange in downtown Los Angeles said trading volume was not as heavy as it was on the Black Monday. Still, shocked and exhausted traders trudged off the floor of the exchange comparing Friday’s nearly 200-point decline to the stock market crash of 1987.

“It was absolutely crazy in there, just like the crash two years ago,” said Doug Clark, an equity trader with Legend Securities. “I started out the day with a whole pack of Rolaids, now I’m down to one.”

Traders say they began to sense the change shortly before noon, when they were deluged with wave upon wave of selling orders stemming from the surprise news of financing problems connected with the $6.75-billion buyout of UAL Corp.

“The government released inflation figures this morning, and they didn’t seem particularly bad,” said David Barry, a securities trader. “But when that UAL deal ran into trouble, we went into a self-perpetuating slide.”

Even so, officials at the Pacific Exchange say orders were executed more efficiently than during the October crash two years ago. And they said the experience of the 1987 stock market tumble helped prevent the spread of a general market panic.

“It went a lot smoother this time,” said Keith Zambelich, a quality assurance analyst at the Pacific Exchange. “We really learned a lot from Black Monday.”

David Wikle, a trader with Paine Webber, was among those least rattled by developments on Friday: “The market’s got a long way to fall before it gets really bad.”

Doron Kochavi was in the research room at Wedbush Morgan Securities in Los Angeles, writing a speech with the working title of “Ten Best Ways to Invest in the 1990s.” It was just after noon, and quote machines started showing “major pressure on the sell side,” he said.

Kochavi is senior vice president for investments at Wedbush, and when the market closed, he jumped on a conference call with technician David Holt, to figure out what happened. Their conclusion: 1989 was vastly different than 1987.

“There was no panic selling at all,” Kochavi said. “We immediately got on the phone and faxed information to our clients to calm down and hold their hands. I saw it as a great opportunity to position myself to do some buying, so I was very much involved in trying to get some terrific bargains.”

The drop was a surprise for Steve Lauck, manager for Ashfield & Co., a San Francisco investment firm for pension funds and wealthy individuals. Still, Lauck said, the market’s weakness is only temporary.

“We have seen this before,” Lauck said. “Once the selling starts, it intensifies. It is clearly a shakeout in the junk bond market and mergers financed by junk. But we view it as a short-term phenomenon. The market is fundamentally attractive.”

Fears concerning the recent problems takeover targets have faced with obtaining financing, including through the junk bond market, touched off a ripple effect across a broad range of stocks, whose prices also fell.

“Nobody committed suicide, but I don’t think today’s the day,” said Marilyn Cohen, president of Capital Insight Brokerage in Beverly Hills. “I think Monday’s the day.”

Investors who were crushed in the 1987 crash have rebounded in the ensuing two years and are investing again, Cohen said. If Friday’s damage expands into Monday, “it’s really going to take a whole generation of investors out of the market.”

“They were burned once, and after a second time, it’s ‘forget it,’ ” she said.

Mel Knee, a Sherman Oaks dealer in contemporary art, said he spent Friday afternoon putting in an order to “sell everything” when the market opens on Monday. Knee had his money invested largely in Sotheby’s, the art auction house, and a computer company called Safeguard Scientific.

If he can sell at today’s closing prices, Knee’s portfolio will still have gained 13% to 14% during the year. And once he’s out of the market, he said, he’ll be hoping the drop continues so he can buy stocks at bargain prices at a later date.

Still, Knee said, he has no one to blame but himself for his losses. Early Friday morning he had an “uneasy feeling” that he wished he’d heeded: “It’s Friday the 13th,” he said, “and everything’s starting to get gray.”

Leonard Gumport, a Los Angeles bankruptcy attorney said: “I’m glad I don’t own any stock.” Gumport grinned and opened his briefcase to reveal a book entitled “Boom & Bust.”

“It was bound to happen,” he said.

Times staff writers Nancy Rivera Brooks, John O’Dell, John Medearis, Jesus Sanchez, Jim Schachter, Jube Shiver Jr., Ralph Vartabedian and Teresa Watanabe contributed to this story.