October 19, 2012 is the 25th Anniversary of the stock market crash of 1987. On “Black Monday”, October 19, 1987, the Dow Jones Industrial Average (DJIA) plunged by 22.6% (508 points) for the largest single one day percentage decline in over 100 years. Even the stock market crash of 1929, which encompassed two days (October 28 and October 29, 1929) did not have a daily decline greater than 13%. (The stock market at that time did decline by 25%, but it was over a two day period.) A 22.6% decline of the DJIA at its closing price of 13,487 on October 18, 2012 would imply a drop of 3,048 points.
Over the past 25 years, from its closing price on October 19, 1987, the DJIA has increased at a compounded annual return of 8.7% (plus dividends of about 3% per year).
Although some very well known investors of that era sold large portions of their holdings into the crash, Warren Buffett was not one of them. Not only did Buffett not sell any of Berkshire Hathaway’s major stock holdings at that time, he very calmly waited for the stock market to stabilize. Beginning in March, 1988, Warren Buffett began to accumulate what is today Berkhsire’s largest equity holding, Coca-Cola ($15 billion). Warren Buffett purchased his position for less than 10% of today’s price, and he has held on to these shares ever since.