Word: portfolios
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Dates: during 1980-1989
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Suddenly the professors had a salable product. Bolstered by the marketing skills of their new partner, a Bronx-born investment consultant named John O'Brien, portfolio insurance took off. By 1984, Los Angeles-based Leland O'Brien Rubinstein was insuring hundreds of millions in assets. Two years later, the firm had licensed its strategy to half a dozen investment counselors, including Wells Fargo Investment Advisors and Aetna Life Insurance, and the value of covered assets had grown to some $45 billion...
...what happened on Oct. 19? Basically the scheme was undone by its own success. When the stock market began to dive, all the portfolio insurers started selling futures at once. As the price of the futures collapsed, the stocks followed suit. That triggered further selling by the portfolio insurers, reinforcing the downward spiral. One of the biggest, Wells Fargo, sold $1.6 billion in futures on Black Monday alone. This was more than the market could absorb. Says Capital's Kirby: "It's like a guy driving into a parking lot with the Queen Mary and asking, 'How come these guys...
...their defense, portfolio insurers point out that their combined actions accounted for only 20% of the volume on Oct. 19. "You can't blame us," says Eric Seff, a managing director of Chase Investors Management, a division of Chase Manhattan Bank. In fact, much of the damage on Black Monday was done by a small group of fleet-footed traders who could see the insurers coming and rushed to get out of the market ahead of them. Says Fred Grauer, chairman of Wells Fargo's investment unit: "The preponderance of selling activity was in the hands of others...
Regulatory action could make it much more difficult to use portfolio insurance in the future. Last week the New York Stock Exchange announced an experimental ban on certain computer trades when the Dow rises or falls 75 points or more in a single day. Moreover, both the Chicago Board of Trade and the Chicago Mercantile Exchange have imposed daily limits on how much the prices of stock-index futures can fluctuate. But even the Brady task force says it would prefer to let the marketplace make its own decision about portfolio insurance, rather than try to ban it outright...
Exports are up and imports are down, but the gap between the two is still large enough to keep the U. S. deep in debt. -- Once the hot new investment strategy, portfolio insurance loses popularity and takes part of the blame for Black Monday. -- A glib scam artist nets $10 million and a mail- fraud < charge. -- Digital audiotape is on the way. -- Sony will sell VHS as well as Beta...