On this day in economic and financial history...
The Dow Jones Industrial Average (INDEX: ^DJI ) regularly swings 100 points in either direction, with little notice paid by the millions of investors who hold stocks for the long haul. That wasn't the case on Oct. 16, 1987. A then-record decline of 108.36 points was the first triple-digit swing in Dow history, "capping a disastrous week that left many on Wall Street battered, poorer, and nervous about what might lie ahead," in the words of The Washington Post.
The Post continued, "Investors and analysts attributed today's heavy retreat to snowballing fears that the market's huge five-year rally may be ending." It had been nearly five years to the day that the Dow clawed its way above 1,000 points for good, and as that bull run ran out of steam on Oct. 16, 1987, the index sat at 2,246.73, for a five-year gain of 121.8%. Portfolio manager Joe Rosenberg of Loews told the Post, "Stocks have been selling [for] 20 times earnings with the lowest yield in this century. How could anyone say that stocks were the place to be?"
Computerized trading was blamed for the Dow's dramatic final-hour drop, but there were several instances of big declines tied to simple bad news.
The Santa Fe Southern Pacific Corporation, which was in the middle of an unsuccessful merger attempt, reported seven offers for its Southern Pacific railroad, only to see its shares drop by about 10%. A year later, the embattled railroad company was forced to divest its rail assets. The Santa Fe segments of this company later merged with Burlington Northern, and the Burlington Northern Santa Fe Railway wound up becoming Warren Buffett and Berkshire Hathaway's (NYSE: BRK-B ) largest-ever acquisition.
Newmont Mining (NYSE: NEM ) , then embroiled in a hostile takeover battle with T. Boone Pickens, won a court fight against the corporate raider only to see its shares lose 22% of their value from the previous day's close. The company remains independent to this day, which is probably better for Pickens, as its shares have only returned an annualized gain of 2.6% for the 25 years that followed.
The Post, in closing offered an example of gallows humor that had been circulating on Wall Street: "What do you call a yuppie arbitrageur?" "A waiter." Oh, those wacky Wall Street traders!
A big day for the House of Mouse
Walt Disney (NYSE: DIS ) began his eponymous entertainment empire on Oct. 16, 1923, when he signed his first contract to produce a series of cartoons known as the Alice Comedies. Disney wouldn't issue its first stock until 1940, but the years between founding and public debut saw a torrent of innovative animation activity. Mickey Mouse debuted in 1928. The first color cartoon (and first Oscar-winning cartoon) was released in 1932. Snow White came out in 1937.
Today, Disney is a $90-billion global entertainment titan, with world-famous theme parks, a fleet of cruise ships, a wide range of successful television shows, and a regular lineup of blockbuster movies. It all began 89 years ago with Walt Disney's trademark signature on a piece of paper.
A big day for the House of Edison, too
The Edison Electric Light Company incorporated on Oct. 16, 1878 to commercialize Thomas Edison's recent patents for incandescent lighting. It is the earliest direct parent to today's General Electric (NYSE: GE ) , which was created in 1892 by merger of Edison's company with another major electric light manufacturer.
General Electric has remained part of the Dow since 1907, though it was a component of the first index compiled in 1896. Disney joined the Dow in 1991 and has been a member ever since.
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