There were good reasons to be skeptical of the “computer people.” For one thing, their sophisticated hedging didn’t always work so perfectly. On October 19, 1987, the Dow Jones Industrial Average plunged 23 percent, the largest one-day decline ever, a drop blamed on the widespread embrace of portfolio insurance, a hedging technique in which investors’ computers sold stock-index futures at the first sign of a decline to protect against deeper pain. The selling sent prices down further, of course, leading to even more computerized selling and the eventual rout.
