The roaring 1920s and the Crash 1929
I'm going to do a two part series about the 1929-1932 bear market and the following great Depression. First a write up and then some nice videoclips of the time with more information and showing the mood back then!
The roaring 1920s and the great bull market:
The roaring 20s were a time of great prosperity and with many technological developments. Cars for the masses, radios, electricity for the common households. People bought vacuum cleaners and washing machines, movies with audio became the standard.
Of course the stock market also rose. Speculation became widespread as the good times rolled. Finally everybody owned stocks, not only entrepreneurs, directors, employees, but also nurses who received stock tips from their patients, or taxi drivers, or window cleaners etc. It was also thought that because there was the prohibition, meaning alcohol was banned, people were sober in their thoughts and judgements. People no longer went drinking in bars but increased their life standards and bought stocks. Banks gave credits to buy stocks on margin, no problem as stocks would rise forever. It was a new era, as everyone thought. The ratio was 10:1 at the top, meaning, if you had $100 you could purchase up to $900 of stocks.
So since the last bear market 1920 the Dow Jones Industrials rose 5 fold to 381 on September 3, 1929. At the top the stock market had a PE of above 30. (This is like at the top in 2000 when it also traded above 30. At the top in October 2007 it had a much more reasonable PE of 18.) It then fell 17% in a month and recovered half of the losses again. The market then again started to fall and accelerated into what is known as the Crash of 1929.
Chart from djindexes.com who have a nice article with more details of the 1920-1929 bull market.
The bear market 1929-1932:
There were no real news that caused the crash. It just happened. On October 24, 1929, famous as Black Thursday, the stock market fell 12.9% to its intraday low, however it recovered back to a loss of only 2.1%. On October 28 1929, the so called Black Monday, the stock market fell 12.8% and the following day again 11.7%. In total the stock market lost 23.1% in those two days. This was the 1929 crash. However stocks continued to fall until November 13 when they reached a low at 198. So the market had lost 48% since the top in September.
After that the market recovered until April 1930 when it reached 294. From then on it was a steady downside zigzag, which made people think every time that the bear market was over and lured them in again. The Dow Jones reached its final low in July 1932 at 41. It had lost 89%. And that is only the stock market average. Many blue chip stocks of the time went to zero. It took the market until 1954 to reach the nominal top of 380 again.
Chart from http://www.chartsrus.com/
Millionaires became beggars, family fortunes were destroyed, the small investor lost everything. Many committed suicide. Those who could afford it shot themselves, others hanged themselves and some jumped out of the window of a skyscraper.
Of course there were some who made a fortune by selling short like Jesse Livermore or Bernard Baruch.
But enough words, here a nice 20 min. videoclip docummentary of the Crash 1929:
Part 1 (4 min)
Part 2 (3 min)
Part 3 (4:30)
Part 4 (4 min)
Part 5 (3 min)