Key Points:

At the start of 1987 the sharemarket bears gained an unusual ally.

When former Prime Minister Sir Robert Muldoon took the podium at the Orewa Rotary Club for the 19th year in a row, the surging stock market sat squarely in his sights.

Advising investors to at least pull half of their money out of the market high-flyers, he described what he saw as a "speculative mania" in the growing divide between share prices and their fundamental value.

The investment companies that bore the brunt of the collapse were starting to "look uncomfortably like a form of pyramid selling scheme".

"Until such time as you realise your investment, you do not have a profit: you merely have some satisfying figures in the daily papers. If [having sold half] you lose the rest, at least you are still ahead on the deal," Sir Robert said.

In hindsight his observations are startling in their accuracy. Nine months after the speech, on October 19, the sharemarket plunged 4.3 per cent, kicking off what markets around the world would come to know as Black Monday. And that was just the beginning.

Over the next three years the sharemarket lost more than two-thirds of its value, the fall setting the stage for a string of corporate failures and law suits.

But the day after Sir Robert's speech the market pundits dismissed the gloomy predictions.

Alan Bertram, an investment manager at the then AMP mutual society, told the Herald he agreed the sharemarket had hit a danger zone. But he insisted there would not be a serious fall. Instead investors would need to be more selective in their buying.

Another broker noted leading firms' price-earnings ratios - a key measure to judge whether stocks are cheap or expensive - were not out of line with world standards.

Five days later, financier David Richwhite said one or two investment companies would not perform, but there was not a bubble that would burst.

"In 1987 and beyond companies will have to start producing profit and results. Going into 1988 the men will be sorted out from the boys," Richwhite told the paper.

In short, the weight of predictions, as the subsequent market rallies suggested, was wrong. It is for this reason that few of those who lived through the crash are willing to be unequivocal, although they agree the conditions that gave rise to the crash 20 years ago are not present in today's market.

Sure the market has had a strong run over the last couple of years. And its historic price-earnings ratio - a key valuation measure - now stands at around 20. This compares with an average of around 11 at the time of the crash, suggesting shares are now more expensive than they were back then.

But that, according to former Brierley Investments chief executive Paul Collins, is where the similarities end.

"While the market has been very strong in the last couple of years it bears absolutely no resemblance to 1987. We have much stronger fundamentals. And while the market probably got fairly fully priced and valuations are higher than they have been for a long period of time you still have quite strong fundamental earnings and you have balance sheets that are not overly geared."

The weight of opinion is with Collins.

The crash followed a confluence of unusual factors, the most important of which was the deregulation of the financial sector by the Lange Labour Government.

This led to an explosion of credit and a frenzy of lending - often at the expense of a robust examination of credit quality. And it came during a time when the country's economic fundamentals were not great.

Running alongside this newspaper's market report of the sharemarket crash is a Westpac advert hawking a deposit interest rate of 19 per cent - a figure suggesting borrowing rates that would cripple most of today's businesses.

"A lot of New Zealand shares never recovered because they had no foundation to recover from. They invested in virtually any stock that moved," Collins said.

His point is underscored by comparing the sharemarket leaders at the time - heavy with companies that benefited from the sharemarket boom and whose profits largely relied on the cash generative properties of their investments.

Today's market - for better or worse - is entirely made up of companies that are strongly cash-generative businesses in their own right (see table, C16).

At the same time regulation around securities markets is now much tighter. Rules designed to protect investors from insider trading, disclosure of market-sensitive information, takeovers, and financial reporting standards, among other things, have become much more prescriptive and have reduced the risk that the excesses of the eighties will be repeated.

And sharemarket scrutiny by the banks of analysts and professional fund managers is now much more robust. "In the eighties research on companies was pretty flimsy," said one broker at the time.

"The expectation is now that companies should stick to their knitting and if they come up with any blue-sky ideas the market punishes them."

And now there is the memory of the experience.

Rod Petricevic, founder of crash victim Euro-National and now head of private finance company Bridgecorp, says anybody who was still in business today and operating under the current market conditions is better for learning from the experience of it all.

"We're older and wiser for the experience. And investors are more savvy. We survived and in the process learned the hard lessons of the eighties and business is better for it."

Collins adds: "It taught us not to carry excessive debt. At Active Equities [his new company] we carry no debt at all. I know a lot of people who borrowed excessively on shares. I went into the crash with no debt at all so my focus on [BIL] could be total."

That said the class of 1987 remain convinced that the potential for investment bubbles will always remain. Without exception they highlighted the potential of the residential property market and the boom in private equity funds - which invest in private firms - to burn investors in the future.

Olly Newland, founder of the now defunct property group Landmark, says despite the regulations the market will always find a way to get ahead of itself.

"Do you really think [regulation] makes a difference. I think human nature is constantly looking for a deal. I think the investing public is just as mad as ever. When you can borrow 100 per cent to buy a home, even 110 per cent. I think that is daft."

Allan Hawkins, former head of the now defunct Equiticorp, believes the current property boom is a hangover from the crash. "The banks have got so burned now that in a lot of cases they do not want to know about anything other than property."

There was nothing that would prevent similar things happening now. "The market is the market. It will go off on a tangent and there is nothing you can do about it no matter what rules you have."

Sir Richard Carter, grandson of the Carter Holt Harvey founder, says things come in cycles. "History does have a habit of repeating itself."


Where they are now
Ray Smith
* Then: Founded Goldcorp with the merger of the Auckland Coin and Bullion Exchange and private property interests and floated in 1987. It went receivership in 1988, holding less bullion stocks than the amount Goldcorp had undertaken to hold for or supply to its customers. Smith was later jailed under bankruptcy laws.
* Now: Believed to live in Queensland, with interests in property and technology.

Rod Petricevic
* Then: Founded investment group Euro-National. It took complex positions with other glamour stocks including Ariadne, Renouf Corporation and Kupe, but when the market crashed, those put options were worth considerably less than was at first hoped. Euro-National survives within the CDL group of companies.
* Now: Devotes his energy to his private vehicle, finance house Bridgecorp.

Sir Frank Renouf
* Then: Founded Renouf Corp, after a long history in stock broking and investment banking. But the firm was hit by share deals with Bruce Judge's Judge Corporation and Rod Petricevic's Euro-National Corporation in the crash. He died in 1998.

Michael Cashin
* Then: Chief executive of Renouf Corp, from which he resigned just before the crash. From there he joined the professional director circuit and held positions with Housing New Zealand and Capital Properties.
* Now: A director of the recently created Cavotec MSL Ltd, and Ryman Healthcare, among others.

Bruce Judge
* Then: Former BIL investments executive, Bruce Judge took unknown quarry company Ariadne from nothing into an Australian top 25 company in five years. But his convoluted web of companies in the 1980s destroyed or diminished some of New Zealand's finest corporates, including NZI Corp, Rothmans, R&W Hellabys, Donaghys and Alliance Textiles.
* Now: Chairman of finance house Impact Holdings, which is listed on London's AIM market.

Sir Richard Carter
* Then: Chairman and chief executive of wood products group Carter Holt, the firm founded by his grandfather. He left the firm in 1992, just after International Paper of the US bought its controlling stake.
* Now: Since retiring to his Ararimu property south of Auckland, he remains involved in his family's varied interests, including farming, and lumber.

Olly Newland
* Then: Newland formed Landmark Corporation as a listed property investor in 1982. By 1986, it was making a profit of nearly $10 million and had assets of more than $450 million. But the company fell into receivership after the crash.
* Now: He runs his own property development company and moonlights as an author and television personality.

Sir Bob Jones
* Then: Head of property company and sharemarket titan RJI. It later became Trans Tasman Properties.
* Now: Runs his own investment company out of Wellington and has recently appeared on television in Dragons' Den.