Not enough doom and gloom in your diet? The Big Money shares the diary of Benjamin Roth, who was a lawyer during the Great Depression. Via the Consumerist. Here’s an excerpt:
June 5, 1931. Immediately after the 1929 crash the speculators rushed in to buy “bargains” but were badly mistaken because the market kept going down and down even tho’ industrial leaders kept on assuring the people that everything was fine and the worst was over. At the present time the newspapers are urging people to buy these “bargains” but opinion is much divided as to whether or not the bottom has been reached.
Investments in real estate and mortgages fared almost as badly as stocks. Since 1929 foreclosure by the banks has been the order of the day. Day after day real estate can be bought for the price of the first mortgage and there are no bidders except the bank which holds the first mortgage. In this way the banks are becoming the holders of huge quantities of real estate.
Although Slate is a respected name, for some reason I am still skeptical of these diaries. Where did they find this diary? Why has it never been published before if Roth died in 1978? I’m sure people would have been interested back in 1987. Did people write using “quotes” back in 1931? The parallels are almost too close and the writing seems nicely edited.
But, taking it at face value, reading it definitely does provide some food for thought. For example, are stocks really a bargain now? It may not be wise to bail out completely from stocks, but it may not be wise to overly load up on them either. Everyone is trying to predict the bottom, but we might have to be prepared to wait for a while. Gee, it turns out that predicting the short-term movements of the market has always proven to be a weak point for the “experts”!!
The Best Credit Card Bonus Offers – November 2024
Big List of Free Stocks from Brokerage Apps
Best Interest Rates on Cash - November 2024
Free Credit Scores x 3 + Free Credit Monitoring
Best No Fee 0% APR Balance Transfer Offers
Little-Known Cellular Data Plans That Can Save Big Money
How To Haggle Your Cable or Direct TV Bill
Big List of Free Consumer Data Reports (Credit, Rent, Work)
As Warren Buffett is keen to say. If he followed the advice of the experts(including a few Nobel winners) all his years he would not be where he is today.
I like what Dave Ramsey has said (this one time at least):
Don’t pull out, Don’t invest more, and don’t invest less. Stick to your previous plan and you won’t have a reason to worry.
(unless of course you’re 55/60 years old or older and have most of your money in stocks. On that note, your plan wasn’t very good to start off with.)
History tends to repeat itself. While I am trying to be optimistic about stocks are near a bottom, your post speaks to me about being cautious and I will take heed.
Hello: I am the editor of The Big Money; thanks for the post, and I’d like to address the authenticity question that you raise. It definitely crossed my mind that this could be a hoax; however, after extensive conversations with the Roth family, as well as seeing copies of the written journal itself, I am convinced that the journal is all too real. It wasn’t published before for the simple reason that current events made the family realize the diary’s relevance. The Roth family approached a book publisher, which suggested that they try to publish the diaries online first, which is how it ended up with us.
I hope you find this useful.
I prefer this lawyer letter on Dr. Housing Bubble – at least the language feels more appropriate for the times 🙂
http://www.doctorhousingbubble.com/personal-story-by-a-lawyer-from-a-previous-asset-bubble-can-we-learn-from-the-past-and-how-will-the-housing-decline-impact-you/
There were massive redemptions by mutual funds and hedge funds
in September, and this is likely to continue until the end of October and beyond. The important question is, are the masses right in selling now? If history is any guide, redemptions on this scale tend to happen toward the end of a bear market. That is, unless you think we are headed for the Great Depression.
Is this guy Benjamin Roth for real? Google does seem to turn up any references to him.
James Ledbetter – Thanks for taking the time to address my concerns. I look forward to reading the rest of the series.
If I may I ask – are you quoting the journal with no paraphrasing or editing whatsoever?
Hey Michael,
Ask Warren how his S&P puts that he sold are doing? He is supposed to be setting the example and using mark-to-market accounting (something EVERY company should do). It will be very interesting to see what the hit to Berkshire’s income is going to be.
If Buffet is the Oracle and Greenspan is the Maestro…..we are doomed!
In the Crash of 29, JP Morgan Co, tired to do the same thing that JP Morgan the man did in the Panic of 1907. They bought in the hopes to stabilize the market. Didn’t work out the same way.
Bear Markets are very volatile. Kind of like what we are seeing. The bulls have been calling a bottom at 11,000, 10,000, and 9,000. Not hearing that now. The call now is that we are closer to the bottom than the top. Duh! Definitely can’t go to zero and we are getting close to 50% down.
Until the fraud that has been allowed in our financial system to be recognized and gotten out, we are going to continue these whipsaws and the closer we are going to be to a system failure on a global scale.
Assume markets will be going down further and invest. If you have the money to buy 100 stocks, start with 10-15 and invest in an SIP every month for the next 6-7 months.
TD
First of all there is no such thing as a bottom or a top in the stock market. People who talk about bottoms or tops don’t understand how the stock market actually works. There is no bottom or top on a roulette wheel. All during this panic meltdown there are stocks going up. How come? Averages don’t really exist. They’re just ideas in somebody’s mind, don’t be fooled by illusions. The so-called market will get “better” when the economy improves. The first thing you should look for are signs that the economy is improving or will improve in the near future. Even then it’s still just a gamble.
I got burned exactly like that, just recently. I bought Dell and Citi for what the fundamentals analysis said was a good deal, and they kept sliding. I am actually buying more to have a lower cost per share 🙂
To read up on some real history go here:
http://www.fdic.gov/about/learn/learning/when/1920s.html
Follow through the 1930’s
Easy reading, shocking parallels.
Why make up a diary when the truth is already accessible?
I’m still trying to load up. I am loading up all the way down, and will load up even more on the way up. Even if a person bought at the peak before the 1929 crash, bought stock all the way down, then bought all the way down, they still made money in the end. It’s scary, but this is how fortunes are made. The market is acting as if earnings are never coming back. Major blue chip companies are trading at multiples that would easily get Ben Graham’s attention. General Electric is priced at 8 times earnings. Price them down even more please!!!
Toppy: yes, they made money in the end but how long did it take?
I just looked at some simulated data where I simulated my current nest egg as if though it was 1929. If I kept buy through the crash, the spiral, and the return I would have broken even in 1937 and then gone very negative a year later. I would not have gotten back to even until 1945!
That’s 15 years of essentiall 0% returns (If I had accounted for inflation I’d probably be looking at 1950!)
That’s roughly 20 years to break even. That’s dismal but that’s what happened.
Wes, 1929 comparison won’t work for today unless we fight another world war (with Russian and Chinese?)
Yeah, I’m kinda mad because i was going to sell my gold and wrote about what to look for in a reputable company. As I waited and refined my article, the price dropped to below $700!! Eeks! I should have sold it when it was $940.
Reminds me of a quote from Edwin Lefevre’s “Reminiscences of a Stock Operator”, published in 1923.
“Another lesson I learned early is that there is nothing new in Wall Street. THere can’t be because speculation is as old as the hills. Whatever happens in the stock market to-day has happened before and will happen again. I’ve never forgotten that.” (pg 10, excerpt available of amazon)
Anybody who is surprised by cycles, surprised that the stock market doesn’t ALWAYS go up and can actually go down for years at a time, or surprised by speculatory bubbles and collapses is either being extremely stupid or extremely disingenuous. I think Wall Street right now has an unhealthy combination of the two, which is why we got the crony capitalist bailout.
The natural thing to do during bear markets is to sell everything and remain in cash. I agree with the previous posters that one has to maintain their investment plan and not change it because the market has gone lower. Noone knows when the market will increase – so keep with you asset allocation mix.
And definitely have an emergency fund covering 12 months of expenses.
Yes, I agree about tops and bottoms being an illusion. Although, I’ve heard more then once lately that somewhere around 7500 is the real bottom, because according to a lot of charts (see all the fancy yahoo chart thingys), that’s the lowest point where there has been “support”, in the last many years. But who’s to say that the same people would support the market now, with all other things being variable? I mean that support (sometime in 2003) was occurring during the housing boom. Of course, there probably are experts who know a combination of patterns that would help them predict where this is likely to go. The great depression was actually during much simpler times, and probably easier to understand, economically speaking. This world is so complicated with all of the markets, currencies, trade agreements – who the heck knows! My thought about the diary is only that it was written for a pretty specific group of people who actually made investments during that time — whereas today, it could apply to almost anyone.
If the stock market drops to 7500 on the Dow what if anything is there to stop it from going below that level? I see absolutely nothing that could or should stop it. That’s because the so-called averages are not real. There is no average or any type of average that actually reflects what goes on in the so-called market. It’s not even a market. It’s an exchange. There’s a big difference between the two. What should you do? Look for signs that the economy is or will start to improve than start looking for companies that can profit from whatever growth there is in the economy.
Wes,
How did you calculate the returns ? Did you use CAGR (%) or you did a back run using the actual DOW numbers ? Is there an online calculator that takes periodic investments over a period of time and run it through an Index (say DOW or Total Stock Market) with data from 1920 onwards.
Please let me know.
I’m all cash since April 2007 and won’t buy a thing until this coming Depression and Capitulation hit. I also sold my home at bubble peak in 2005, took the free tax and am renting since then until the housing market finds a bottom. I don’t believe in dollar cost averaging any longer because the markets have changed, mostly rigged by Hedge Funds and daytraders. If you did the dollar cost averaging into mutual fund indexes for the last 20 years, you lost a serious amount of money by now. The S&P 500 Index is down 40% in 10 years and 18% in 5 years. Nikkei is down 80% in 20 years, while emerging markets are bankrupt, with some borrowing money from the IMF. Plus you had the crash of 1987, the first housing bubble, the Asian crash of 1998, and the tech bubble in 2001. Everything you learned in books or heard from financial planners aren’t convincing when you check the returns and charts against their assumptions. Warren Buffett was another one of those few who made lots of money because of the WWII that came right after the Great Depression. All of you out there who have been doing cost dollar averaging into mutual funds indexes for the last two years, how much are you down (plus inflation, fees, etc)? And no, the bottom isn’t near because we’re just entering negative GDP and mass unemployment.
I download a file that had the the daily close of the DOW from 1900 until 2007. I used Excel. I then put in a nestegg starting in 1927. Then i bought a tiny amount everyday for the next 30 years and graphed the results.
If you want to see the file I cen send it to you…
skorskiw at yahoo . com
Hey Wes maybe you can leave it for Jonathan, I’m sure lots of us would love to see the resulting chart 🙂
If you had been looking at a chart just a few days ago of the Dow could you have predicted what was going to happen today, the Dow was up about 900 points? Charts don’t work and they don’t really mean anything, they are illusions. You might as well be looking at the wind mills of your mind. The so-called market is actually a roulette wheel. But when it comes to a roulette wheel you know what the odds against winning are. Not so with the so-called stock market. No body knows or even has a clue about how to calculate the odds.
Interesting, that war comment. As economic downfall is often accompanied by war. Makes one think…