Learning From Black Monday
Featuring Nick Sofocleous and Tony Greer
Published on: July 19th, 2019 • Duration: 11 minutesNick Sofocleous, senior vice president at Sanford Bernstein, joins Tony Greer of The Morning Navigator to discuss his experience navigating volatile markets as an inexperienced trader in 1987. Sofocleous talks about how Black Monday in October of 1987 colored his perspective for the rest of his career. This clip is excerpted from a video published on Real Vision on July 1, 2019 entitled “A Bull’s Warning.”
NICK SOFOCLEOUS: The 25th of August, 1987 was peak market, pre-crash of October '87.
TONY GREER: Yeah.
NICK SOFOCLEOUS: I knew absolutely nothing.
TONY GREER: Yeah. So let's start right at the beginning, August of 1987 when you got your start in the markets.
NICK SOFOCLEOUS: Yeah, yeah.
TONY GREER: Take it away from there, man, the S&P at $340, gold under $500, and the US 10-year yields at 9%.
NICK SOFOCLEOUS: So, yeah, fun times in London. So a teenager coming out of school--
TONY GREER: How old?
NICK SOFOCLEOUS: 17.
TONY GREER: 17, right onto a desk.
NICK SOFOCLEOUS: Yeah. Well, not quite.
TONY GREER: But close.
NICK SOFOCLEOUS: But as close as you can get. And it wasn't on a desk, and you weren't on the phones, because there weren't enough phones for everybody. You weren't in front of screens, because there weren't enough screens for everybody. So you had to work your way up. And that was post Big Bang in London. There were some real jobs and real people in London in those mid '80s.
TONY GREER: And you got started right on the buy side, correct?
NICK SOFOCLEOUS: I did get started on the buy side. I was very lucky. There were some people that decided to take a bit of a punt on someone that was fairly good with numbers. That happened to be me. Yeah, it was a really fun time. The 25th of August 1987 was peak market, pre-crash of October '87.
TONY GREER: Yeah.
NICK SOFOCLEOUS: I knew absolutely nothing, and everybody around me was busy. And they were busy learning. They were busy trading. There were busy assets allocating. And then after August of '87 in October of '87, we came up with a bit of a crash. And those days were amazing, because when you know nothing, you learn everything. So through the days in London, there was the hurricanes in '87, Lloyd's of London, it was touch and go whether they were going to be around, they had massive losses, the crash of '87 in the US stock market. And there was one particular day, I remember it. I turned around to a colleague of mine, really senior, a great, great asset manager. And I turned around to him and I said, so yesterday, we were buying. But today, we're not. Can you explain that? And he politely asked me to sit down and mind my own business for a minute.
TONY GREER: Stay out of the way for a minute.
NICK SOFOCLEOUS: That's right. Yeah. That was right. It was '87.
TONY GREER: So now you're in the middle of the firing lines. There was a market crash that takes the S&P down 22% or so. And we probably wallowed around those levels for the next year or two before, I guess, the S&P broke out again in 1990. But what's stuck with you from back then? What lessons did you pull away from being in such a volatile market with such little education at the time? Because I know all of that gets flipped on its head to where we are today.
NICK SOFOCLEOUS: Right. Right. That's really interesting. What do you learn from '87? You learn from really smart people in '87 to keep calm, that if you can keep your head while all about are losing theirs, you're going to be just fine. And that's really difficult to do in high volatility environments. But that's what I learned from '87.
TONY GREER: That's a very good point. So from there, you started making observations on markets, taking them very seriously and picking up some tools into your toolkit as you grow as a trader. So into the early '90s, we kicked the decade off with a war in the Gulf, we start moving into the very, very beginning of the internet boom, the infancy stages, I would say, in the early '90s, '92, '93. Tell me about your experience on the buy side as a young, now, someone in your early 20s going into that experience.
NICK SOFOCLEOUS: Right. So 1990, you've got go [? for ?] [? one. ?] And the experience from '87 takes you into go [? for ?] [? one. ?] Because when we started to rise in volatility in 1990, you could turn around to me and let's say, I've seen worse. So all of a sudden, you weren't panicking anywhere near as much as you were in '87. Fast forward into now, you've catching a bit of a wave of a bull market from '91 through to '93 and into '94. So now you're into 94, and you start getting an IPO calendar that is taking flight. So every day, every week, you've got these red herrings coming through the post.
TONY GREER: Wow.
NICK SOFOCLEOUS: And you're having to read these red herrings. There's no email, and you're placing orders to buy these IPOs. And every day, there's more IPOs. Now, history has told you, if you could sit through '87, through 1990, and '91, you were in a bonanza situation in '94 and into '95. Fast forward, you start getting into the Fed, cheap money, Greenspan doing everything that he can do to calm everybody. Then, Greenspan turns around and says irrational exuberance. And you think the bubble has burst. Far from it.
TONY GREER: Yeah, exactly. So we keep going.
NICK SOFOCLEOUS: We keep going. We're into '97.
TONY GREER: Now we've got Amazon is delivering everything to your house already. Right?
NICK SOFOCLEOUS: Wow. Yeah, yeah.
TONY GREER: Starting with books and CDs, but we're getting there.
NICK SOFOCLEOUS: Right. But then the real trades are if you can hang on to the bull market in the US. Your real trades are being driven by currencies and being driven by rates. So with Russia having its troubles in '97, the US didn't care, as in the US stock market really didn't care.
TONY GREER: Right.
NICK SOFOCLEOUS: Fast forward '98, and LTCM blows up. So the lesson of '97 into '98 is, as much as you think it matters in Russia, it doesn't matter until it's on your doorstep. And your doorstep was LTCM in '98, which was another episode of, if you can keep your head while all about are losing theirs, you were in great shape, because then you rode late '98 into '99 into early 2000s.
TONY GREER: Right. So now, do you recall yourself thinking about your first days as a trader in the stock market sort of crashing back then, back in October of '87? You know, are you worrying about this the whole time? Are you seizing your opportunities on all the dips and stuff?
NICK SOFOCLEOUS: It's so funny you should say that. That's so true. In your first experiences, you always think they're going to be replicated very soon.
TONY GREER: Right.
NICK SOFOCLEOUS: And it's good to have that as a mental record, but it's fatal for being able to trade correctly, because you miss your opportunities. And that's when you try to gauge when you have opportunities. Are you in a bull cycle? Are you in a bear cycle? Are asset prices going up? Are asset prices basically going down? By the way, asset prices going down might mean asset prices are just flat, which is what we have now.
TONY GREER: So the markets are rallying ferociously into '98, '99, toward the dot.com bubble, which we haven't gotten to yet. But in 1999, I know you made a tremendous life decision to change time zones, life centers, and everything.
NICK SOFOCLEOUS: Right. Right
TONY GREER: Tell me, what was that about? How did you pick yourself up from being so entrenched in the markets in London and saying, OK, we're going overseas?
NICK SOFOCLEOUS: Yeah, that's interesting. So early '99, I get a call from the company in New York, Sanford Bernstein. And they basically asked me, do you want an adventure? And I thought to myself, I've traded US now for probably 8 years. I've been observant of the market now for 12. If you want to be in the lion's den for US equity trading, you have to be in New York. So I said, I'd love to be part of that adventure. They were kind enough to say, we'd love to have you. And off I came from London to New York. Now, the interesting thing about moving countries-- and a lot of your viewers will see this, a lot of people will understand what I'm saying-- is it's damn difficult.
TONY GREER: Oh, I can imagine.
NICK SOFOCLEOUS: It's damn difficult. So the people that you thought that you knew well in a city of, any time, it could be 24 million people. You know, the 12 million here, 24 in the tri-state area. You actually don't know anyone. It can be the loneliest experience. So what that teaches you is, take everything one step at a time. Don't cross bridges you don't need to cross until you're asked to cross them, because there's too much to take on board.
It's a big city. You're being asked to be a professional in a professional firm in a professional setting where, quite frankly, you're the underdog. And you have to understand you're the underdog. And you have to fight again and again, not only with the market, but with the people that are in New York. You almost feel it's you versus the world. But you can't take on the world at once. You have to do it one step at a time. And it was a huge life lesson.
TONY GREER: Oh, I can imagine.
NICK SOFOCLEOUS: It's one step at a time. Trying to do anything well takes steps.
TONY GREER: Yeah.
NICK SOFOCLEOUS: And that was a huge lesson for me.