Founder of hedge fund Steinhardt Fine Berkowitz & Co.
In April of 1987 I told my investors in a letter that the market was too hot and fraught with danger. I gave all sorts of reasons why I was out of the market, but by the time the fall came around, guess what? I was back in. Dumb as dumb. I always tend to be a little bit of a contrarian, for good or for bad, and so even though the market was getting shellacked, I was buying on the way down that day. I had orders in to buy the S&P futures. Every ten points down I was buying ten S&P futures, so as the market went down I continued to buy some on a regular scale, but I was buying them too early. My purchases were profitable looking out three or four months, but when that day was over I was shocked at the amount of money I had lost.
That decline, more than any other I know of before or since, was a failure of the internal mechanisms of the market to function properly. It was not the stock market predicting a severe recession or something like that. It was simply the fact that all sorts of new instruments - portfolio insurance and other devices - had been introduced, and the market was not prepared to deal with them and it got clobbered. It ended, there was no recession, and life went on. It was a most peculiar internal event. I can't say I recognized it on that day, but I recognized it soon thereafter.
