How a bolt from the blue floored me in a phone box in Tus­cany

The Weekend Australian - - BUSINESS REVIEW - ALAN KOHLER

I learned two big lessons in 1987: first, that be­ing early can be the same as be­ing wrong, and sec­ond, I learnt the mean­ing of “black swan” 20 years be­fore Nas­sim Taleb in­vented the term.

One of my strong­est mem­o­ries of the mar­ket back then was John Spalvins of Ade­laide Steamship call­ing the mar­ket top in late 1986 and warn­ing of the com­ing crash.

At that point the All Ordinaries was at 1200, hav­ing gone up a heady 60 per cent in two years. He could have been right.

But then, from July 1986 to Septem­ber 1987, it dou­bled, at which point Spalvins ca­pit­u­lated, piled in and sent his com­pany broke. With the ben­e­fit of hind­sight, the ca­pit­u­la­tion of Spalvins the bear was the surest har­bin­ger of the crash that hap­pened 30 years ago next week.

The 1987 crash in Aus­tralia is usu­ally dated as Tues­day, Oc­to­ber 20, the day af­ter Black Mon­day in New York, when the All Ords fell 25 per cent. But the peak of our mar­ket was on Septem­ber 21 — between then and the low point on Fe­bru­ary 10, 1988, it fell 50 per cent.

We know now that Black Mon­day was caused by pro­gram­matic trad­ing, iron­i­cally used by in­sti­tu­tional in­vestors back then to pro­tect them­selves from crashes. Now com­put­ers are used to trade for gain, but back in 1987, when the mar­ket started fall­ing, com­puter stop-loss or­ders took over and it dropped 25 per cent be­fore the hu­mans knew what was go­ing on.

But you know what? Those who got out when Spalvins started ring­ing the bell in 1986 would have ac­tu­ally sold be­low that Fe­bru­ary 1988 bot­tom, and would have missed a 100 per cent gain in the mean­time (as­sum­ing they got out at the top, of course). They were early and safe … and wrong.

My sec­ond big les­son came around the time the mar­ket was bot­tom­ing in Fe­bru­ary.

At the end of Septem­ber 1987, I had been edi­tor of the Fi­nan­cial Re­view for a bit over two years and my wife and I de­cided to take a hol­i­day, our first since the kids were born, four and two years ear­lier. So with Deb’s mum look­ing af­ter them we headed, kid-free, to Tus­cany, to a villa in a small town

near Florence. I can’t re­mem­ber its name.

We ar­rived on a Sun­day morn­ing, rented a car and drove to San Gimignano for the day. When we got back that night I found a phone booth in town and rang my deputy, Glenda Korporaal, to see how things were. “You bet­ter ring Max (editorial di­rec­tor Max Suich),” she said. “The pa­per has been sold to Robert Holmes a Court.” Sud­denly I was sit­ting on the floor of the phone booth.

There had been no hint of this be­fore I had left on Fri­day, although a cou­ple of months ear­lier War­wick Fair­fax had taken over his fam­ily com­pany us­ing ANZ money, and sell­ing the AFR was prob­a­bly some­thing he had planned all along to re­duce debt.

Any­way, Max said that Holmes a Court was in Lon­don and it would be a good idea if I could pop over there to talk to him. Our hol­i­day had lasted ex­actly one day. When we got to Lon­don, the AFR’s new owner in­vited us to the the­atre (his the­atre) to watch Phantom of the Opera and said he’d give us a lift back to Aus­tralia in his jet the next day. We could talk on the plane.

Fine, I said. No prob­lem. Think­ing: well jeez, this is the life. He picked us up in his Rolls-Royce Phantom; his plane was a Boe­ing 727, pre­vi­ously owned by an Arab sheik and beau­ti­fully fit­ted out.

When the plane took off, and the small talk had been ex­hausted, Holmes a Court, rich as Croe­sus and the la­conic scourge of Aus­tralian com­pa­nies, got to his feet, stretched, and headed into the bed­room. We didn’t see him again un­til we landed in Perth. At which point, he breezed past, head­ing for the stairs to the tar­mac.

“Hey Robert,” I called out, “I thought we were go­ing to talk about the fu­ture of the Fi­nan­cial Re­view.”

“Oh sorry,” he said, “let’s talk some other time.”

“No, we have to talk now. I’m not get­ting off the plane un­til we talk.” I couldn’t front the troops back in Syd­ney with­out some­thing, any­thing! With a sigh, he sat down and we talked, but I didn’t get much. He didn’t have any plans — we were just one of the baubles he was col­lect­ing.

That didn’t mat­ter. For the next four months I worked around the clock to plan the AFR’s exit out of Fair­fax, and help pre­pare de­tailed plans for the pa­per’s fu­ture un­der in­de­pen­dent own­er­ship.

When the mar­ket crashed on Oc­to­ber 19/20 we were swept up in one of the sto­ries of the decade and gave no thought to what it might do to our new owner — af­ter all, he was float­ing on cash, wasn’t he? Above such earthly blips?

At the same time, there were events com­ing out of Can­berra al­most daily from the Hawke-Keat­ing govern­ment, Rea­gan was hap­pen­ing to Amer­ica and Per­e­stroika was hap­pen­ing to Rus­sia. Cir­cu­la­tion was surg­ing and we were go­ing to be a sep­a­rate busi­ness owned by a rich guy. It was very ex­cit­ing.

But in early 1988, around the same time as the mar­ket was bot­tom­ing, Holmes a Court’s sur­pris­ingly in­debted em­pire went into cri­sis be­cause of the crash and he had to start sell­ing as­sets.

We learned that he hadn’t ac­tu­ally bought the AFR, just signed a Mem­o­ran­dum of Un­der­stand­ing (MOU) and he just pulled out. The AFR was stay­ing put in­side the rapidly un­rav­el­ling John Fair­fax.

Over­come by dis­ap­point­ment and en­nui, I quit, a de­ci­sion I re­gret to this day. I planned to start my own busi­ness news­pa­per: wrote the busi­ness plan and lined up the fund­ing, but then in­ter­est rates went to 17 per cent and the backer pulled out.

Be­fore 1988 was out, I was back writ­ing Chan­ti­cleer.

So the crash of 1987, 30 years ago this week, changed my life, as it changed John Spalvins’ and Robert Holmes a Court’s, and many, many oth­ers’.

Such is life in the mar­kets.

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