October 1987 was much worse than October 2008

October 19, 1987 was the day that the Dow fell a record 22.6% -- then a record 508 point decline. (The Dow lost a total of 21.8% during that month). By contrast, the current month is on track to end down a relatively modest 16.6%. But even though the Dow went down much more in October 1987 than it did in October 2008, it turns out that the 1987 crash preceded the economic contraction by about two years. By contrast, the October 2008 crash seems to be happening at the same time as the economy implodes.

I remember the October 1987 crash well because I was working in a consulting firm whose CEO asked a colleague of mine to come up with a list of stocks to buy. He was convinced that the 508 point decline was an anomaly that did not reflect the state of the economy. And it turns out, he was right. The 1987 crash seems to have been caused by a computer based trading program that got out of control.

By contrast, when we look back on the current economic and stock market downturn, we may see the peak as having taken place in the summer of 2007 -- that is about the same time that the Dow reached its high above 14,000 which took place in October 2007. Unlike in 1987, I would be surprised if that consulting firm's CEO told one of his people to find him stocks to buy after stocks tumbled this month.

In that sense, even though the market suffered much more in October 1987 than it did this month, I would not be surprised if the current market downturn presaged a much more painful economic contraction.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.