Portfolio Insurance
A 1980s strategy that promised to limit a portfolio's losses by automatically selling stock-index futures whenever prices started to fall. Prudent-sounding for a single investor, it became dangerous when many large institutions ran the same automatic rule at once: a modest decline triggered mass programmed selling, which drove prices lower, which triggered still more selling. This feedback loop was a central cause of the 1987 Black Monday crash, after which portfolio insurance fell out of favor.
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