Welcome to another edition of My Money Diary. Today we look at a dream I had of a stock market crash and what I did or didn’t do about it. Now, normally a dream is a dream, but I remember this one being particularly vivid. It occurred on Friday October 16th, 1987.
In that dream I saw the Dow (the Dow Jones Industrial Average) dropping hundreds of points. I remember waking up that morning and remembering it distinctly. I also recall telling myself that come Monday morning I was going to try and short the market based on that dream.
So, what may have prompted that dream other than inside info from an alternate dimension? Well, the stock market that year had been going gangbusters and was up over 40% going into that week. Then there were three straight days where the market dropped. On Wednesday it was down 95 points, then Thursday 58 points and finally on Friday it was down 108 points.
Now those point drops might not seem all that drastic especially considering the wild swings we have seen in 2020 and prior years. But on a percentage basis they were fairly drastic. That was a drop of 3.8%, 2.4%, and 4.8% respectively. That Friday drop would be comparable to a 1,300 point drop in the Dow today.
Maybe those 3 straight drops lodged in my mind and had me conjure up a dream in which the market was going to crash on the next day it was open – which would have been on Monday. Who knows? But that dream was real and in my mind I was going to take advantage of it if I could.
Before we go any further with this Money Diary story just know that I’m not a registered financial advisor and that these articles are for entertainment purposes only. Always do your own due diligence when looking at any potential investment or seek the advice of a professional.
Setting the Stage for the Future
Let’s set the stage by taking you back to the latter part of 1986. During that time period I had started to study the stock market and investing. At that point I had a little money invested in mutual funds but not very much. Always looking to make a quick hit I began to study the futures market. (This is not a good investment strategy by the way lol).
What is the Futures Market? Investopedia describes it thusly: “A futures market is an auction market in which participants buy and sell commodity and futures contracts for delivery on a specified future date.”
Now, you’ve probably heard people talk about trading pork bellies, oil and gas futures, corn and the like. Well, that is the futures market. The contracts I was interested in trading were the stock market futures contracts. You could leverage your bets (er investments) in the stock market by buying futures contracts on certain stock indexes.
Anyway, I sent away for information on trading futures and a lot of the brokerages sent me all sorts of pamphlets. One in particular named Lind-Waldock sent me some great stuff. They may still be around today in a limited capacity – not entirely sure.
Now, the beauty of futures contracts is that you can control a large amount of money by putting up a small amount of capital. Of course, the danger of futures contracts is that you are at a much greater risk should the market turn against your position.
Well, I studied and studied and in early 1987 I decided I was going to open up an account. I chose a local full-service broker over Lind-Waldock which was telephone only trading at that time – at least in my area.
I Open Up a Full-Service Brokerage Account
When I went to open up my futures trading account I’m sure the distinguished gentleman who was handling my account must have thought I had lost my mind, especially when I told him I was currently employed at a restaurant.
He was the only one in the firm that handled Futures accounts. The more I talked to him, however, the more I started to think that I knew more about futures trading than this gentleman did. I will say that the education I got from reading all those pamphlets was quite detailed.
To make a long story longer I ended up plunking down $12,000 of my hard earned money in my new quest for riches and glory. I would settle for just the riches I told myself. Ok, that’s a lot of tips I remember thinking – I hope I don’t lose this. I knew there was some danger involved with this type of investment.
Anyway, at that time I could control 1 S&P 500 stock index futures contract with $10,000 margin money or 2 NYSE contracts for $9,000 margin money. The 2 NYSE contracts would allow me to control the same amount of stock as 1 S&P 500 contract if memory serves. So, I decided to focus on the NYSE contracts. The 2 NYSE contracts would allow me to control over $150,000 worth of stock.
My First Stock Index Futures Trade
I decided not to waste any time. As soon as the account was set up I told the broker that I wanted him to buy 2 NYSE contracts at the next day’s open.
The following day, I duly reported to the restaurant where I was working, made my meager amount of tips and immediately called the broker to see how I had done. He informed me that I finished the day up $2,300. Come again? Up 2 g’s in one day? Now we’re talking I thought to myself. Easy Street here I come.
Not Quite as Easy as It Seemed
However, I somehow got lost on the way to Easy Street. I mostly just broke even over the next couple of weeks and then I hit a bump in the road. Ok, a couple of bumps. There was a day I was long 2 contracts and got wacked pretty good. Then it happened a couple of more times. I’d come back a little then give it up again. It seemed I was mostly just hitting the bad days and missing the good ones.
And, that’s what happens if you aren’t following a system. I also wasn’t using stop loss orders which is very dangerous when you are that leveraged. If I was following charts or doing fundamental analysis at least I would know I had a plan – and something to blame if I was down. As it was, it was like I was throwing darts. A monkey could have done as well I soon realized.
As if all that wasn’t enough I was starting to get stressed out about the trades. After a couple of months, with all my great trades, my $12,000 had become $9,500. Hmmm, I thought, as this rate that account will be zero soon. So, I decided to halt my trading and just let the account sit there. This must have been around April of 1987. About 6 months before my dream of a stock market crash.
The Moment of Truth
The first thing I thought about when I had the dream of a stock market crash was that futures account I hadn’t used in 6 months. I still had $9,500 left which was enough to control 2 NYSE futures contracts. Because I wanted to bet on the market falling I would now be selling two futures contracts instead of buying them. Which is a perfectly acceptable thing. If I did that I would then just have to buy 2 contracts back in order to close out the position.
I had it all figured out. I was living in an apartment with my brother at the time and remember telling him about my dream and what I was planning on doing come Monday morning. Having a bit of a risky streak in him as well (which you may read about later) he was all for it.
Anyway, I was anxious to see what Monday would bring. I wasn’t disappointed. Early in the morning I turned on Cnbc and watched what looked like a real bad opening for the market. I noticed that the NYSE futures contracts were already down about 4.5 points which was a big drop. At that time a fairly big move was about 2 and half points for the day!
My Resolve Begins to Weaken
That had me a bit worried. It looked like the market would fall further but what if it snapped back? I might get crushed if I sold two contracts. My resolve was already starting to waiver when I called my broker.
I told him I wanted to sell 2 contracts and he advised against it. He said this market was highly volatile and there was no telling what would happen. I actually agreed with him. We went back and forth for about 15 minutes and finally both came to the conclusion not to do anything. I remember thinking at the time that if a broker, who makes his money off of commissions, is telling you not to get involved that might be the right call.
After the phone call I scurried off to work. I actually felt really good about not selling the two contracts. I wouldn’t have to spend the day worrying about my position while I was working. The more I thought about it I could have lost quite a bit of money if I had invested and then the market came back quickly.
There were no smart phones tracking the market back then. So, I had no clue as to what was going on as the day unfolded. I made my $30 in tips for that day and headed home. When I got home my brother came out of his room and asked if I had sold the 2 contracts. No, I said. Well then don’t turn on the tv he said. Oh my what have done I thought. Or not done in this case.
Of course I couldn’t help myself. I turned the tv on and my heart sank. The Dow had finished down 508 points. The market itself was down over 22%. The biggest drop in history. Even as of today in 2020 that percentage drop is still the single biggest drop in stock market history. I sat on the couch stunned. And, not so stunned. It was pretty much like what I had seen in my dream.
The next step was to torture myself further and calculate what I would have made for the day and compare that to the $30 I made in tips. Oh, this should be interesting I thought. By my rough calculation I figured that if I had sold the two contracts at the outset I would have netted somewhere over $35,000 for the day. For the day. For. The. Day. Yowzer.
The Silver Lining
By the next morning the market snapped back. Had I sold the 2 contracts but not covered my position before the end of the prior trading day I would have given back almost half of my gains. I consoled myself with this less than comforting thought.
That experience was like almost participating in the biggest game of your life. I can just picture somebody saying, “You’ve been training for this moment your entire life and now it’s here. Do what you came to do.” And, then having me walk away without participating.
I guess I did participate to a certain extent. I actually called my broker with the intent to short the market on what would have been the biggest shorting opportunity in stock market history. I was right there. This close. But, you know what they say. Close only counts with horseshoes and grenades.
Looking back I should have never become involved in futures trading. If I was looking to take a gamble like that I should have played the options on the futures contracts which would have limited my risk to a set amount.
Even then, if you don’t have a system or know what you’re doing you will probably lose money. I just happened to land myself in the perfect position through a combination of a strange prophetic dream of a stock market crash, and an account already set up to take advantage of the opportunity. I just couldn’t pull the trigger. I’m not gonna lie, I still think about that one on occasion.
I hope you enjoyed this money diary tale of woe and heartbreak lol. Be sure to check out my Money Diary series for more entertainment. I’ve just started the series and will be adding more money diary stories soon. You can check these out right now:
Oh, and in case you think dreams like I had are a rarity check out my new post on Premonition Dreams. I had over 1,500 folks leave a comment on a former website describing their dreams. Fascinating stuff!
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