Business Options

Manila Bulletin, July 10, 2008 | Go to article overview

Business Options


In a restaurant an Investment banker points out a businessman to his colleague and says: "See that person over in that table? I made for him a small fortune". The businessman spots the Investment banker and points him out to his colleague: "See that fellow over there? He turned my big fortune into a small fortune?"

The Use of Information

Let us now go back another 10 years to what is now referred to as the "Black Monday" of October 19, 1987. Thanks to the internet and Wikipedia , anyone can easily research into most anything and this is a message that is well addressed to the generation who were between not yet of school age at that time. On this day, the New York stock market dropped 22.6 percent based on the Dow Jones index, the biggest one day drop in history The rest of world's stock markets were similarly affected. There are numerous interesting aspects of the October 19, 1997 crash but there is a particularly interesting episode from the article entitled: "Explaining the 1987 Black Monday Stock Market Crash and Potential Implications" by John Paul Konig that I found through the use of the Wikipedia. Here is an excerpt from his interview with Stanley Druckenmiller who managed the Quantum Fund of George Soros who is one of the world's best known investors.

"That Friday after the close (of trading), I happened to speak to Soros." Soros showed him a "study that demonstrated the historical tendency of the stock market to accelerate on the downside whenever an upward sloping parabolic curve has been broken - as had recently occurred. The analysis also showed the extremely close correlation between the 1987 and the 1929 stock markets with the implied conditions that we were now on the brink of collapse."

The study done was made by Paul Tudor Jones and here is an excerpt from his interview by John Paul Konig: "We had been expecting a stock market collapse since mid 1986 and had contingency plans drawn up because of the possibility we foresaw for a financial meltdown. When we came in on monday, October 19, we knew that the market was going to crash that day.

It goes without saying that George Soros, Stanley Druckenmiller and Paul Tudor James sold on that day and had probably started selling earlier. The lesson that I would like to point out is the need for information and to process it well. It is not about whether there is another crash coming or not. But if there was, it surely would be nice to be as well informed as George Soros or to have a fund manager who is as well informed. Or, follow Warren Buffet and analyze and invest in companies for the long term based on the fundamental strengths of those companies. …

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