Study Uncovering Hidden Truths: Re-Examining the 1987 Stock Market and Fishhoks Study

The 1987 stock market crash has been studied by experts and written about extensively over the past few decades. Despite a deep dive into this infamous economic event, there still remains much to learn about the crash and the subsequent effects it had on the world. This article will explore the causes of the crash and highlight one lesser-known practice used by investors in its wake: the Fishhook Strategy. The circumstances leading up to the 1987 stock market crash—widely referred to as Black Monday—were complex, but several factors have been identified as contributing to the event. The first major factor was the decline in stock prices beginning in July 1986. This decline was mostly due to an overvaluation of stocks, which indicated the market was heading for a correction. Additionally, institutional investors faced a new set of regulations known as “Regulation V”, which put a cap on the amount that they could borrow to purchase stocks. This further contributed to the declining prices since large investors weren’t able to purchase as much stock as before. The final major factor was the falling dollar. As the dollar weakened, foreign investors pulled out of the US stock market, and US investors moved their dollars into other markets like gold and European stocks. When coupled with declining stock prices and institutional regulations, the US stock market was set for chaos. On October 19, 1987, the markets plummeted 22.6%, making it the largest one-day percentage drop in the Dow Jones Industrial Average’s history. In the aftermath of the crash, investors had to turn to other strategies in order to make money in the market. One such strategy, the Fishhook Strategy, became popular amongst stock traders. It was developed in the early days of the recovery by analyst Robert Ferrell and involved holding stocks for small profit targets and moving them quickly in and out of positions. The strategy has endured over the years, in part because it is relatively easy to execute and has historically had good returns. Though the 1987 stock market crash was a traumatic event for investors and the public at large, analysts and economists have studied its causes and impact in order to prevent future crashes. These studies have revealed strategies like the Fishhook Strategy that can be useful during times of economic volatility. Undoubtedly, the history and lessons of the 1987 crash carry an important lesson: when it comes to the stock market, careful preparation and foresight can help to protect investments.