Procter & Gamble was founded on Halloween 1837, after a father encouraged two sons-in-law – one a candlemaker and the other an apprentice soapmaker – to go into business together.

On the morning of May 6, 2010, P&G was a consumer products titan that sold $78 billion worth of thousands of household items annually. The stock was among the bluest of blue chips, and it had closed the night before at $62.16. At 2:42 p.m., it was still trading at $62. At 2:47.30, it traded at $39.37.

That was nothing. Accenture, which had closed at $42.17 on May 5, was still trading at $41 at 2:30 that next day. At 2:47:53, 100 shares traded at $.01, as in one penny. For this, dear reader, was the infamous 2010 Flash Crash. And if you don’t understand why and how it happened, you don’t know that and how it – or something eerily like it – can happen again.

Which is to say that, for all their long-term efficiency and vaunted liquidity, the capital markets remain, moment to moment, hostage to numberless algorithms capable of generating limitless numbers of trade orders in milliseconds. Those algorithms were written by some of the most brilliant mathematicians on the planet. And what the Flash Crash demonstrated was just how mind-numbingly stupid those algorithms can be, and how much thermonuclear chaos they can spawn in moments of stress.

Needless to say, the Flash Crash was a blip. The S&P 500 ended May 6 down 3.2 percent, but it was already up 5.9 percent from its lows for the day. The “crisis” had passed; this is both narrowly true and perfectly irrelevant. The damage was done: coming so recently after the carnage of 2008-2009, that horrific blip took out a whole generation of volatility-benumbed investors who had managed to hang on until then – but could no longer.

If your most valuable function as an investment advisor is to be the antidote to clients’ mindless panic – and it certainly is – you need to understand the Flash Crash.  You can acquire this understanding with crystal clarity in just 45 pages of Scott Nations’ absolute treasure of a book, A History of the United States in Five Crashes. You read that right: in addition to the Flash Crash chapter – which may be worth to your practice a thousand times what you pay for the book – Mr. Nations also provides equally well-researched and vivid accounts of the 1907, 1929, 1987 and 2008 events.

With the obvious exception of Jeremy Siegel’s Stocks for the Long Run, Mr. Nations’ Five Crashes is the single most impactful, most enlightening book about markets that an advisor can read. See that you do.

© 2019 Nick Murray. All rights reserved. Printed by permission. The twentieth anniversary edition of Nick’s classic book for clients, Simple Wealth, Inevitable Wealth, was published in April and is available only on