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camistocks (< 20)

The roaring 1920s and the Crash 1929

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April 20, 2008 – Comments (11)

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)

11 Comments – Post Your Own

#1) On April 20, 2008 at 3:58 AM, Tastylunch (29.54) wrote:

"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"

LOL, did people seriously think that? I never heard that about the 20's before. That's really crazy. Claiming all the disposable income that used to go into liquor went into stocks? Makes me wonder how much the world markets would go up if crack, heroin, crystal meth etc disappered tomorrow..

There was a lot of sunny unrealistic optimism then though,  in school I was taught that Americans were also pretty naive in the 1920's . My favorite historical ancedote from the 1920's is the Kellog-Briand Pact which had the main purported purspose of outlawing war. Great Idea in theory, virtually impossible to achieve in practice.

Man no wonder the market crashed. Did you see the notice  the size of that run up from jan 1928 to the crash ? that's nearly a 90% gain in less than two years!! 

You know my great aunt (who was in her twenties during the crash) always blamed Roosevelt more than Hoover, She never invested stocks her entire life but she always felt strongly that all the New Deal programs of the 1930's delayed the recovery or as she put it "the cure was worse the cancer"...She was probably the only person I knew from her generation that actually thought Hoover was a good president.

My grandfather on the other hand did invest in stocks and he  made a killing in stocks because he waited until near the near of the depression to do his buying. Some of which he held onto the end of his life, never selling a share. He left detailed ledgers that I hope to transcribe to excel  when I get the chance someday. I think his biggest winners were National City and some phone company that eventually became Alltel (and apparently now also Windstream) today.

Great post Cami ,lookin forward to part 2 

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#2) On April 20, 2008 at 7:07 AM, zygnoda (26.71) wrote:

http://www.stock-market-crash.net/1929.htm 'Soon stock market trading became America’s favorite pastime as investors jockeyed to make a quick killing. Investors mortgaged their homes, and foolishly invested their life savings in hot stocks, such as Ford and RCA. To the average investor, stocks were a sure thing. Few people actually studied the fundamentals of the companies they invested in. Thousands of fraudulent companies were formed to hoodwink unsavvy investors. Most investors never even thought a crash was possible. To them, the stock market “always went up”. '

Doesn't that sound like the real estate market?

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#3) On April 20, 2008 at 11:49 AM, XMFSinchiruna (27.97) wrote:

Fascinating post Camistocks... thanks for putting the time in!!

May we not be the generation destined to repeat history as a consequence of ignoring it.  The ignoring has already been done, by the banks and the greedy minds that thought up the OTC derivatives ponzi scheme.

Perhaps I should wait until your Part II to link this article, but I don't want to forget... PBS' Frontline did a fascinating piece covering major developments in banking regulation from 1933 to the present.  For setting the stage for how we came full circle to repeat the mistakes of the late 20s, the Glass-Steagall Act must be considered as part of that process.

Tastylunch, I will look forward to a post about your grandfather's investment ledger some day too... that could be really interesting.  :)  My great-grandfather was buying real estate towards the end of the depression, picking up large Victorian houses and waterfront property for peanuts.  I wish I had some kind of ledger to indicate how he managed to have cash on hand at the end of the depression to make such purchases, especially considering he was a 1st-generation immigrant from Armenia who fled the genocide there without penny to his name.

 

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#4) On April 20, 2008 at 1:54 PM, abitare (58.10) wrote:

Good post.

Take a look at: abitareperfect

1929 Depression vs today's real estate bubble quotes

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#5) On April 20, 2008 at 9:53 PM, madcowmonkey (< 20) wrote:

abitareperfect- wow! Where does the perfect fit in? Sorry about the teasing, I am coming off of a sardine can flight with NWA. Amazingly they filled the flight up from DET to LAX and the three biggest guys were all in the same row.

Cami- I read somewhere about the prohibition and clarity. I really laugh at that, because people were still drinking. They just were not able to in public venues. I still do some of my best thinking while I am sober and some when I am social to. This is definately an interesting topic to look at with your take on the 90 90 theory. I am finding myself baffled by what I read in the NYtimes and the fool. One consensus is that there is going to be an oil bubble coming. AnomlLee had a couple of graphs on the subject, but I couldn't really pick up on the analysis. I do feel that the one advantage/disadvantege (either way you see it) is that the market(s) have global players/positions to keep it from being as drastic I feel. Only problem is I am not right very much. Could the possible recession be harder, because of the other countries feeling the heat as well. People are saying India and China are hot, but these countries have too large of a population to keep the fundamentals from being jacked. The BRIC is still in play, but I have a stinking suspicion there are some skeletons/practices that are going to catch up with the industries they rely on. Somehow I find myself being more and more optomistic about the market even though I read alstry's blog and feel like my head is going to explode. I find it funny that the 19th ammendment ended a downturn and started a run-uo with radio (media). Which brings me to my final point. With so many opinions and views on the market/health of the US, I feel that people are playing on the fear game and that this will cause the market to be very drastic in its ups and downs. I don't really like this for my positions.

A) It drives stocks up in one day for what they should do in a year.

B) I never know when to truly exit a company on runups. I have my spots usually, but lately the market makes me want to pull too early. I fight this often.

C) Too many investors are in one day and out the next. This leaves an unstable market in its path. The short term profit takers are killing the long term investors, but they are paying handsomely for it in the taxes.

D) Lastly, I find myself with 4 positions now, but I would like to have more like 10-15. If others are doing this, then somewhere companies are being left out.

Lastly, a stock market losing 89% is very frightening. I can only hope that the companies/finacials have the amount of assets that they claim. I read an article today about accountants being too leniant on the books and one way to remedy this, would be to have a term for accountants. This makes sense to me sense it would be a checks and balances if you had another companies accountant watching your footsteps. It sounds a little hard, but it would definatley weed out the frau/embezzlement/outright lies that the market seems to ignore these days.

I will be looking forward to your second post. Best of Luck Fools.

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#6) On April 20, 2008 at 11:39 PM, camistocks (< 20) wrote:

Thanks all for your comments!

Tasty - I took it from the book Irrational Exuberance by Robert Schiller.

Yeah, let's  outlaw the wars. I see that the pact was signed by Germany and Japan. HEY! They broke the law...! :-)

There were people and Newspapers that warned of the high valuation of the stock market and amount of speculation, like the banker Paul Warburg and the New York Times. Of course nobody wanted to listen.

Interesting read about your relatives.

Zygnoda - did home prices rise 5 fold in ten years? Nevertheless there was a great deal of speculation. Unlike in the 1930s the Fed and the government are not going to "let the market do its thing". They will smoothen the impact of the housing correction.

Sinchiruna - We had the Nasdaq crash were internet millionaires became normal citizens again. Greenspan helped to cushion the crash, although a new bubble emerged.

Thanks for your pbs link, very interesting. Glass/Steagall certainly made some sense as I can see how our two major Swiss banks are in trouble, only because of their investment banking parts.

abitare - nice quotes, amusing to read, however you can always find quotes that state what fits you.

madcow - sure, they were still drinking, like with illegal drugs, which are in constant high demand. It seems they went to clubs, so called "speakeasy's" and thus made people like Al Capone rich.

About stock diversification, I think 10-15 stocks are too little 20-30 is better and from different sectors. So if the oil sector does correct, you will still have sectors that do well, and maybe quite well, as gasoline prices would come down. You should also tell yourself, when you want to sell. Some people strictly sell after a 20% gain and say, they can always find a new stock. Some wait for a 50% runup. Others wait for 100%. And some invest for several years and don't care about short term price movements.

Alstry's blog is like a tabloid. He completely exaggerates facts and creates a new truth, like the 35% unemployment post. Skip him.

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#7) On April 21, 2008 at 1:55 PM, AnomaLee (28.88) wrote:

madcow, I do think long-term an oil bubble is happening. I'm probably years early as were people who raised flags about the real estate markets in late 2005 and 2006, but there is a growing shift in the way we provide energy.

All you videos are no longer available.

 

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#8) On April 21, 2008 at 2:11 PM, camistocks (< 20) wrote:

Lee, the videos are still available. Just reload the page. For some reason embeded youtube clips don't work anymore after a while. Something like 30 minutes or an hour. They still work!

However the chart of the bear market has disapeared. You can see it here:

http://www.sharelynx.com/chartsfixed/USDJIND1930.gif 

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#9) On April 21, 2008 at 11:24 PM, madcowmonkey (< 20) wrote:

Anoma- I to think there is a bubble in the making, for Oil. We have gone from $10 a barrel to $117 in 11 years? The methods that we use to obtain the needed barrels and where we are finding it is changing, because now it is feasablea/cost effective. Hmmmm. Let us think about this for a second. We have found new ways to produce the oil, but it costs more to do it. The demand is there, so essentially we have raised the price per barrel on the fact that it costs more to produce now. If that is the case, then we have subsequently done away with the idea of a bubble. Demand now has to go down for the bubble to pop. I don't think I could put a date on it, so therefore your longterm thesis will most likely be in line. When do we realise that we have an alternative that we can use that costs less and doesn't cause mayhem with our food prices.

Cami- I meant to say that I wished I had 10-15 right now. In a market that I am confortable with I will sometimes double the latter number. I don't just believe in holding 2 companies in a sector for diversification, nor do I just believe in holding companies that complement each other. Therefore, my diversified classification is a little bit more involved than some others and I end up with fewer picks than others. I only hit 30 when I know of a specific sector bull run. Yeah, oil is in it, but I have some issues with just loading up on oil and gold. As we drive the price up for oil, we ultimately hurt ourselves and others in the process.

I have been watching the oil sands projects for a while and I have to admit that the process is a little intimidating if you are a environmentalist. The carbon footprint is much larger when we get the oil this way, and you most likely understand how I feel about carbon and emissions. I most likely lose money because of my ethical standard, but that is my own right and I want to feel good about what I am putting my money towards. 

As for alstrys blog, I usually like thought provoking commentary. Whether it be humor or stupidity. I can hold my own with both. I don't mind trying to read his blogs, but most the time I get through the first paragraph and just start cracking up and then move on. I only wish that my thoughts were more precise when writing. I can't get everything out while typing, so I mess up and miss out on a ton of stuff that I would like to say.

Just out of curiousity, what is your native language and how many languages do you know?

Good luck fools.

Oh yeah, btw. The oil sands projects will provide us with the majority of our oil in the years to come. If it is going to cost more and be more pollutive, then I do not want to support it. The same goes to shale oil. I would rather use the alternative. Not ethanol, but hemp. Lets get the birds singing again. I am just starting to hear them and I love it. 

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#10) On April 22, 2008 at 3:16 PM, camistocks (< 20) wrote:

madcow - my normal language is German/Swiss German, I have learned English at school and because of reading for my investing. French is the language I learned as a child and talk with my parents, and I also learned Italian at school. I don't speak it anymore though, but I could still watch a movie. 

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#11) On April 23, 2008 at 12:58 AM, madcowmonkey (< 20) wrote:

That is really cool that you know all those languages. That is really impressive, I am glad I asked. Thanks.

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