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