When DID the stock market recover from 1929?

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When DID the stock market recover from 1929?

Post by nisiprius » Sun Nov 03, 2019 5:41 pm

I posted this in another thread, and I've posted something like it before:
...the "recovery" [from 1929] was short-lived.... by most measures, yes, the market had recovered by the end of 1936.... But only just barely, and in 1937 it crashed again. That was a decline of -49.93%, so it was just about the same as 2008-2009. Apparently the second crash escapes notice because the 1929 crash was so much worse.

Using the Ibbotson SBBI 2015 Classic Yearbook as an objective source--or, at any rate, not my own judgement--their presentation of the data is: (p. 172, selected lines from table 13-4, "Largest Declines in U.S. Stock Market History)

Peak Aug. 1929, Trough May 1932, Decline 79.00%, Recovery Nov. 1936
Peak Feb. 1937, Trough Mar. 1938, Decline 49.93%, Recovery Feb. 1945
But when I went back and tried to calculate some numbers myself, I did not see recovery before late 1944.

Here's how I got my numbers. I used the month-by-month numbers from the 2015 Ibbotson SBBI Classic Yearbook, p 196, table A-1, "Large-Capitalization Stocks, Total Return." For anyone interested in checking my work, the monthly returns for 1929, starting in January, were:

0.0583, -0.0019, -0.0012, 0.0176, -0.0362, 0.1140, 0.0471, 0.1028, -0.0476, -0.1973, -0.1246, 0.0282

I assumed $10,000 at the end of 8/1929, and then began calculating cumulative growth values from the total return numbers starting with -0.0476.

I was surprised by the results, so I cross-checked by getting data from a different source, Shiller's "Irrational Exuberance" data, available online at his website. The SBBI data might be more reliable because I got them straight from the source. For the Shiller data, I had to derive them by making a calculation from separate price and dividend values; there also might be a date-alignment issue since SBBI data is month-end while I think Shiller's is month-average. Anyway, the two growth charts are reasonably close.

Here's what I got:

Image

As you see, an investment of $10,000 would not have gotten back to even, or even close to it, at the end of 1937. The local maximum, using SBBI data, was $8,543.13 on 2/28/1937; using the Shiller data, $8,808.61.

A $10,000 investment stock market was not back to even until

1/31/1945, $10,063.01, using the SBBI data.
11/31/1944, $10,099.01, using the Shiller data.

In either case, we have at least a 15-year-long bear market, and at least 13 years from bottom to recovery.

In reality, for most purposes it doesn't matter much whether the peak in 1937, after two of the best years in stock market history, was just above or just below the starting point. Nevertheless, it's a detail worth pinning down.

So, did I screw up somehow?

Was someone who invested at the peak in 1929 back to even by 1937, or not until 1945?
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Re: When DID the stock market recover from 1929?

Post by stocknoob4111 » Sun Nov 03, 2019 5:49 pm

It isn't an accurate calculation because that period was hugely deflationary, so you need to adjust for deflation to get an accurate end result. When that is done the recovery is much much faster.

Some good insight into this:
Article: New Study: Stocks Only Took 5 Years To Recover After 1929

https://www.businessinsider.com/henry-b ... 929-2009-4

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Re: When DID the stock market recover from 1929?

Post by rich126 » Sun Nov 03, 2019 5:55 pm

This is kind of covered in:
https://www.nytimes.com/2009/04/26/your ... 6stra.html
HISTORICAL stock charts seem to show that it took more than 25 years for the market to recover from the 1929 crash — a dismal statistic that has been brought to investors’ attention many times in the current downturn.

But a careful analysis of the record shows that the picture is more complex and, ultimately, far less daunting: An investor who invested a lump sum in the average stock at the market’s 1929 high would have been back to a break-even by late 1936 — less than four and a half years after the mid-1932 market low.

How can this be? Three factors have obscured this truth from investors: deflation, dividends and the distinction between the Dow Jones industrial average and the overall stock market.

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Re: When DID the stock market recover from 1929?

Post by sperry8 » Sun Nov 03, 2019 5:56 pm

You may have included it but be sure to include dividend reinvestments. When you do the recovery happens much faster.
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Re: When DID the stock market recover from 1929?

Post by neurosphere » Sun Nov 03, 2019 6:01 pm

I think if I had been alive in 1929 I would have DCA'd throughout the downturn. :wink: When would I have broken even in that case? :wink:

But wait, I might have lost my job and my house and not have had anything to invest. If fact, I may have had to cash out at the bottom to feed myself. Hmm. Retrospective analytical personal assumptions are HARD. 8-)

But, looking at data like this certainly is educational. :beer
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Re: When DID the stock market recover from 1929?

Post by neurosphere » Sun Nov 03, 2019 6:03 pm

sperry8 wrote:
Sun Nov 03, 2019 5:56 pm
You may have included it but be sure to include dividend reinvestments. When you do the recovery happens much faster.
Curious, were there fees/friction on dividend reinvestments at that time? What were commissions on common stock at that time? Did that apply to dividends? I can only assume that investors received a check in the mail, and if they chose to reinvest that, there was another commission? I assume so. Just a guess, that I'm sure Google will answer for me if I chose to ask her.
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Re: When DID the stock market recover from 1929?

Post by SimpleGift » Sun Nov 03, 2019 6:08 pm

nisiprius wrote:
Sun Nov 03, 2019 5:41 pm
Was someone who invested at the peak in 1929 back to even by 1937, or not until 1945?
In real (inflation-adjusted) terms, a 100% stock investor was back to even by 1937 (in purple, chart below) — but this was very short lived. For most stock-heavy portfolios, it took 12-15 years to fully recover (black circles).
  • Image
    Note: All returns are total returns, inflation adjusted, with dividends reinvested.
    Sources: Monthly S&P stock returns from Shiller; monthly 10-year Treasury returns from Medium
Just as interesting, due to strong deflation (especially in 1931-33), bond-heavy portfolios regained their real value within just 4 years, with modest positive returns over the entire period. For more on the worst U.S. portfolio disasters, see this Forum thread.

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Re: When DID the stock market recover from 1929?

Post by Random Musings » Sun Nov 03, 2019 8:37 pm

Sadly, just like today, most investors underperform the "market" by chasing. So, the stock market did ultimately recover, but I bet a reasonably low percentage of investors playing primarily at the equity table in 1929 did recover, even excluding those who didn't live as long to get to that point. Some did, but most likely, new players joined this table over time and reaped the benefits off the 1929 low. I doubt a study can or has been done on this.

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Re: When DID the stock market recover from 1929?

Post by TheLaughingCow » Sun Nov 03, 2019 9:14 pm

Even Benjamin Graham lost money over the period from 1929-1934 and he was buying companies for less than their net working capital and using arbitrage strategies.

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Re: When DID the stock market recover from 1929?

Post by gwe67 » Sun Nov 03, 2019 9:20 pm

Your analysis might be relevant for those who invested at the peak of the market, but there was a large increase in the stock market prior to 1929. Most investors would likely have been invested prior to the crash. Their recovery to initial position would have been quicker.
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Re: When DID the stock market recover from 1929?

Post by JoMoney » Sun Nov 03, 2019 9:29 pm

$10,000 growth starting 8/31/1929

05/31/1932 = $1,834.02

02/28/1937 = $9,421.70

06/30/1944 = $10,416.51
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Re: When DID the stock market recover from 1929?

Post by livesoft » Sun Nov 03, 2019 9:32 pm

Discussed somewhat a few days ago in the ERN blog: https://earlyretirementnow.com/2019/10/ ... ar-market/
See the first table after the 2 first charts. And the 2nd table includes an inflation adjustment.

Basically the same results as nisiprius in the OP.
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Re: When DID the stock market recover from 1929?

Post by Kenkat » Sun Nov 03, 2019 9:39 pm

stocknoob4111 wrote:
Sun Nov 03, 2019 5:49 pm
It isn't an accurate calculation because that period was hugely deflationary, so you need to adjust for deflation to get an accurate end result. When that is done the recovery is much much faster.

Some good insight into this:
Article: New Study: Stocks Only Took 5 Years To Recover After 1929

https://www.businessinsider.com/henry-b ... 929-2009-4
This article forgot to add the lower byline:

Stocks Only Took 5 Years To Recover After 1929
Then they crashed again and took another 8 years after that

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Re: When DID the stock market recover from 1929?

Post by typical.investor » Sun Nov 03, 2019 9:40 pm

Why do you start from 1929?

Do you really think many people lump summed in at that point?

I suspect most investors got in before that and benefitted from the spike upward 25-29. Same with Japanese investors.

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Re: When DID the stock market recover from 1929?

Post by Miriam2 » Sun Nov 03, 2019 9:43 pm

nisiprius wrote: I posted this in another thread, and I've posted something like it before . . . the "recovery" [from 1929] was short-lived.... by most measures, yes, the market had recovered by the end of 1936.... But only just barely, and in 1937 it crashed again. That was a decline of -49.93%, so it was just about the same as 2008-2009. Apparently the second crash escapes notice because the 1929 crash was so much worse. . . .

Was someone who invested at the peak in 1929 back to even by 1937, or not until 1945?
Jason Zweig recently wrote two articles about this in the WSJ -

"Putting the Buy-and-Hold Gospel to the Ultimate Test" 10/25/2019
https://www.wsj.com/articles/putting-th ... ge=1&pos=2

"Sometimes the Stock Market Needs 'Knights of Faith'" 11/1/2019
https://www.wsj.com/articles/sometimes- ... ge=1&pos=1
Last edited by Miriam2 on Sun Nov 03, 2019 9:49 pm, edited 1 time in total.

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Re: When DID the stock market recover from 1929?

Post by JoMoney » Sun Nov 03, 2019 9:47 pm

In inflation (deflation) adjusted terms, $10,000 growth from 08/31/1929 to

05/31/1932 = $2,307.03

08/31/1936 = $10,053.70

02/28/1937 = $11,515.39
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Re: When DID the stock market recover from 1929?

Post by typical.investor » Sun Nov 03, 2019 10:14 pm

JoMoney wrote:
Sun Nov 03, 2019 9:47 pm
In inflation (deflation) adjusted terms, $10,000 growth from 08/31/1929 to

05/31/1932 = $2,307.03

08/31/1936 = $10,053.70

02/28/1937 = $11,515.39

And by ‘37, you were up to $17,839 if you’d bought in ‘27.

Yeah, anyone lump summing in at the peak could face a long time to recover. For those who inherit though and need to make the decision, I bet some of it enjoyed the run up before the drop.

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Re: When DID the stock market recover from 1929?

Post by sambb » Sun Nov 03, 2019 10:16 pm

In great depression likely had to cash out to afford to eat, etc. Not relevant to current times.

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Re: When DID the stock market recover from 1929?

Post by Kenkat » Sun Nov 03, 2019 10:25 pm

sambb wrote:
Sun Nov 03, 2019 10:16 pm
In great depression likely had to cash out to afford to eat, etc. Not relevant to current times.
And most average people did not own stocks - they just lost their jobs when the economy crashed.

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Re: When DID the stock market recover from 1929?

Post by TheDDC » Sun Nov 03, 2019 10:28 pm

Just curious what stocks you would have invested $10k in in 1929. Without the existence of mutual funds, how are you approximating “buying the entire market” as a boglehead would do? Is this cap weighted relative to 1929?

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Re: When DID the stock market recover from 1929?

Post by BH+ » Sun Nov 03, 2019 10:36 pm

For the investor who retired in 1929 the run up in the 20's did not matter. They looked at their portfolio value in 1929 to make that decision, not at their cost basis. If anything, they may have thought that the 30's would be a repeat of the 20's.
Last edited by BH+ on Sun Nov 03, 2019 11:05 pm, edited 1 time in total.

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Re: When DID the stock market recover from 1929?

Post by JoMoney » Sun Nov 03, 2019 10:55 pm

TheDDC wrote:
Sun Nov 03, 2019 10:28 pm
Just curious what stocks you would have invested $10k in in 1929. Without the existence of mutual funds, how are you approximating “buying the entire market” as a boglehead would do? Is this cap weighted relative to 1929?

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Mutual funds existed.
In fact, the beloved Vanguard Wellington fund got it's start just before the crash in 1929
MStar Chart

The Fidelity fund FFIDX got it's start shortly thereafter in 1930
Chart

The very first mutual fund, the MFS Massachusetts Investors Fund, launched in 1924 and started accepting outside investor money in 1928
Chart

The 1925 book "Common Stocks As Long Term Investments" by Edgar Lawrence Smith, is sometimes pointed to as causing the bubble. The book demonstrated how a diversified selection of stocks outperformed bonds over the long term.
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Re: When DID the stock market recover from 1929?

Post by typical.investor » Sun Nov 03, 2019 11:40 pm

BH+ wrote:
Sun Nov 03, 2019 10:36 pm
For the investor who retired in 1929 the run up in the 20's did not matter. They looked at their portfolio value in 1929 to make that decision, not at their cost basis. If anything, they may have thought that the 30's would be a repeat of the 20's.
For the investor who retired in 1929 at 100% stocks after looking at their portfolio sky rocket up in the previous years, seriously?

I don’t see the point of looking at the top and saying the run up doesn’t matter. Of course it does. The subsequent correction is definitely connected.

Retiring at a high equity allocation when valuations are sky high? Yeah, so think twice.

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Re: When DID the stock market recover from 1929?

Post by BH+ » Mon Nov 04, 2019 1:17 am

typical.investor wrote:
Sun Nov 03, 2019 11:40 pm
BH+ wrote:
Sun Nov 03, 2019 10:36 pm
For the investor who retired in 1929 the run up in the 20's did not matter. They looked at their portfolio value in 1929 to make that decision, not at their cost basis. If anything, they may have thought that the 30's would be a repeat of the 20's.
For the investor who retired in 1929 at 100% stocks after looking at their portfolio sky rocket up in the previous years, seriously?

I don’t see the point of looking at the top and saying the run up doesn’t matter. Of course it does. The subsequent correction is definitely connected.

Retiring at a high equity allocation when valuations are sky high? Yeah, so think twice.
Where did the 100% come from?

The main variables for an investor retiring is how much funds they have, their asset allocation, and their withdrawal rate. For example he may have 1m in a 50/50 portfolio and planning on a 4% withdrawal rate. What would the purpose of looking back at his portfolio returns in 2016, 2017, or 2018 be?

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Re: When DID the stock market recover from 1929?

Post by AlohaJoe » Mon Nov 04, 2019 2:01 am

BH+ wrote:
Mon Nov 04, 2019 1:17 am
The main variables for an investor retiring is how much funds they have, their asset allocation, and their withdrawal rate. For example he may have 1m in a 50/50 portfolio and planning on a 4% withdrawal rate. What would the purpose of looking back at his portfolio returns in 2016, 2017, or 2018 be?
For someone with $1m in a 50/50 portfolio on October 1929 it means that their portfolio doubled in past 3 years and tripled past 7 years. In just the previous 12-months it had gone up 30%, from $770,000 to $1,000,000. Remember that stocks went up by 9% just in the month of July that year. That's better than some entire years get! And then the next month they went up another 5% in a single month.

It is entirely possible to argue that some people saw that and thought it would go on forever. After all, we just recently saw the same euphoria around Bitcoin in 2017 where people thought they were set for life when it gained 1,400%.

But I think it is also reasonable to argue -- we see it every single day on Bogleheads -- that some people do look at recent gains, wonder how much is illusory, whether there's a bubble, whether their portfolio should be discounted in some way, or whether they should reduce their risk allocation even further.

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Re: When DID the stock market recover from 1929?

Post by typical.investor » Mon Nov 04, 2019 2:23 am

AlohaJoe wrote:
Mon Nov 04, 2019 2:01 am
BH+ wrote:
Mon Nov 04, 2019 1:17 am
The main variables for an investor retiring is how much funds they have, their asset allocation, and their withdrawal rate. For example he may have 1m in a 50/50 portfolio and planning on a 4% withdrawal rate. What would the purpose of looking back at his portfolio returns in 2016, 2017, or 2018 be?
For someone with $1m in a 50/50 portfolio on October 1929 it means that their portfolio doubled in past 3 years and tripled past 7 years. In just the previous 12-months it had gone up 30%, from $770,000 to $1,000,000. Remember that stocks went up by 9% just in the month of July that year. That's better than some entire years get! And then the next month they went up another 5% in a single month.
That's it exactly.

If you are rebalancing out of stocks into bonds during that meteoric rise of stocks, come 1929 you will have a larger pile of bonds than otherwise. So only looking at the time until stocks reach the same dizzying heights again ignores the fact that you have much more in bonds to fund expenses with. Why ignore that? It's fun to scare people? Happy Halloween except that's over.

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Re: When DID the stock market recover from 1929?

Post by livesoft » Mon Nov 04, 2019 5:37 am

AlohaJoe wrote:
Mon Nov 04, 2019 2:01 am
But I think it is also reasonable to argue -- we see it every single day on Bogleheads -- that some people do look at recent gains, wonder how much is illusory, whether there's a bubble, whether their portfolio should be discounted in some way, or whether they should reduce their risk allocation even further.
Maybe they do that because they are aware of past history including 1929 and 2008-2009? Did the 1928-1929 investor have something like that to look back on?
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Re: When DID the stock market recover from 1929?

Post by AlohaJoe » Mon Nov 04, 2019 5:56 am

livesoft wrote:
Mon Nov 04, 2019 5:37 am
AlohaJoe wrote:
Mon Nov 04, 2019 2:01 am
But I think it is also reasonable to argue -- we see it every single day on Bogleheads -- that some people do look at recent gains, wonder how much is illusory, whether there's a bubble, whether their portfolio should be discounted in some way, or whether they should reduce their risk allocation even further.
Maybe they do that because they are aware of past history including 1929 and 2008-2009? Did the 1928-1929 investor have something like that to look back on?
Yep. They ended up not being as bad as the Great Depression but there were large crashes in
  • 1920. "The Depression of 1920". Post-WW1 crash. The Dow Jones fell 44%. The end of this in 1921 was the beginning of the massive bull market that ended with the 1929 crash.
  • 1916-1918. WW1 crash. -42%
  • Panic of 1907. -50%
There was plenty of experience back then with 50% crashes. Arguably even more so than today.

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Re: When DID the stock market recover from 1929?

Post by mmcmonster » Mon Nov 04, 2019 6:14 am

livesoft wrote:
Mon Nov 04, 2019 5:37 am
Maybe they do that because they are aware of past history including 1929 and 2008-2009? Did the 1928-1929 investor have something like that to look back on?
Agree with you.

A well off individual in the roaring 20s with some money would have heard from their barber that putting money in was a "sure thing". They would have then picked up a paper and seen some of the rises of the previous year. I'm not just talking about lawyers and doctors and other well-to-do professionals of the age. Also the person making a little better than they needed had money to invest. Teachers, nurses, and store clerks come to mind (a quick google search said they were the best jobs for women in that era).

Would they have invested in bonds? I don't know, but before I joined this forum I barely invested in bonds, thinking that they were for rich people that needed to protect "wealth".

I wonder what the median asset ratio was like back then. Impossible to know.

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Re: When DID the stock market recover from 1929?

Post by nisiprius » Mon Nov 04, 2019 8:17 am

The 1920s were complex. It's taken me a while to tune in on it. It's not analogous to anything that's happened in my lifetime. The things that have been most helpful to me in understanding what was really happening have been:

--The 1935 novel, Judgement Day, by James T. Farrell--the third of the Studs Lonigan trilogy. It was written almost contemporaneously with the events it describes. Studs, unemployed and desperate to grow his savings so he can get married, listens to a a friend who says "I work for Imbray... you know what's behind these stocks? Well, I'll tell you. All, or nearly all, the public utilities of the Middle West and the brain of a man like Solomon Imbray [Samuel Insull]. What more security could you want?... I'm not a salesman but everybody in our company is privileged to sell it and if we do, we get a commission..." So Studs invests all his savings in it. As it shrinks, he's afraid to tell his father and girlfriend that he doesn't still have the modest savings they think he has. Finally he tells his dad, who says "Jesus, Studs, I wish you'd asked my advice... Imbray is in a bad spot... Imbray has to plug up his own stock [so he] has to keep getting more money by issuing new stock. He's built up a shaky pyramid and his stock is too watered. Imbray stocks are one kind not to buy. Get out of it quick, and buy some good government bonds, or radio stock. The future of this country is in radio and aviation and when I buy stocks that's what I buy."

--The memoir, The Great Depression, A Diary by Benjamin Roth, when he describes with mild surprise the way the public has suddenly become stock minded since the end of World War II. It was seen as, indeed really was, a fad, like crossword puzzles.

--Perhaps most of all, and most recently, The Day the Bubble Burst: A Social History of the Wall Street Crash of 1929, published in 1979 on the basis of extensive interviews with people who had lived through it. This is the first book that explained to me that "stock tips from the shoe shine boy" was not a generality at all. It referred to a specific "shoeblack" named Pat Bologna, who did talk to his Wall Street customers and was a conduit for stock tips.

The rise of stock market investing by small retail customers was a major phenomenon. In particular there were "ladies of the ticker" or "ladybulls," and brokerages opened special "customers' rooms for women." "Local and national surveys showed that 90 percent of salaried women had bank accounts and that of them, 80 percent held securities." A survey noted a "marked upsurge in the number of cases in which stocks are bought in the name of the husband but where all the correspondence and dealings were with the wife."

Public participation was very actively encouraged by many of the major players, notably John Jakob Raskob. American business was transformed by the discovery that important amounts of money could be raised by selling new stock issues to small retail investors; this was something new.

Market manipulation and inside information were assumed. "Bulls" and "bears" did not mean optimists and pessimists, they meant investors trying to ruin each other by making the market rise or fall.

Investment trusts, the forerunner of today's mutual funds, had a very bad name. A. P. Giannini, founder of Bank of America was worried about them. There were nearly 500 of them, and "while many of them were honestly and intelligently managed, others troubled Giannini; he suspected they were wildly speculative and so poorly capitalized they could not even pay their preferred dividends out of income from the securities they held." Many were leveraged, too. The situation was changed by the Investment Company Act of 1940.

The rising stock market was seen as some kind of transcendent miracle and on days when drama was expected, crowds formed on Wall Street, apparently not just investors, but people who just wanted to be part of the amazing thing that was happening. This, for example, is a link to a picture of a crowd during a rally.
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Re: When DID the stock market recover from 1929?

Post by nisiprius » Mon Nov 04, 2019 8:40 am

This was really a math and data question, not a "how should we think about it" question. It wasn't a question of spinning it--should we think of it as long and terrible, or should we think of it as being over so quickly that it wasn't actually all that bad. I've figured it out, or rather Simplegift did. The issue was inflation correction. I was including reinvested dividends, calculating cumulative growth of the total return, but in nominal dollars.

I should have read the accompanying text in the SBBI volume more carefully. They, and Simplegift, were calculating in real terms, adjusting for inflation. When I do that, I get the same results: "back to even by 1937, but only just barely, and only for a few months, before the second crash."

Image
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Re: When DID the stock market recover from 1929?

Post by Twinsfan10 » Mon Nov 04, 2019 8:47 am

My Grandparents lived though this. They were in a farm in a small town in the Midwest ( a long way from Wall Street). I asked once my Grandpa how much money they lost in the stock market crash and bank closings. He laughed and said they were raising their family and they had no extra money to invest so they lost nothing. They lived on a farm (which was paid for) and had large gardens, chickens, pigs, etc. They did not have to worry about food but the times were tough. They made their own clothes etc. Not many shopping trips or vacations back then.
Probably the biggest effect was that a lot of their generation (and my parents generation) never invested in stocks. When my parents passed away (about 15 years ago) all of their IRA's were invested in Bank CD's. I guess after living through times like that they never trusted the market again.

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Re: When DID the stock market recover from 1929?

Post by sperry8 » Mon Nov 04, 2019 8:49 am

gwe67 wrote:
Sun Nov 03, 2019 9:20 pm
Your analysis might be relevant for those who invested at the peak of the market, but there was a large increase in the stock market prior to 1929. Most investors would likely have been invested prior to the crash. Their recovery to initial position would have been quicker.
GREAT point. We always want to know the "worst case" scenario and yet for us to fall into that worst case seems so unlikely as to be a worthless exercise. Some of my friends are so worried that a Japan style L will happen in the USA... they've been out of the market for years. Meanwhile, back in reality stocks are at an all time high. Had they just stayed invested, even if a crash comes (or when), they'd be down a lot less than the "worst case scenario" their brains fear.
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Re: When DID the stock market recover from 1929?

Post by Valuethinker » Mon Nov 04, 2019 9:36 am

Twinsfan10 wrote:
Mon Nov 04, 2019 8:47 am
My Grandparents lived though this. They were in a farm in a small town in the Midwest ( a long way from Wall Street). I asked once my Grandpa how much money they lost in the stock market crash and bank closings. He laughed and said they were raising their family and they had no extra money to invest so they lost nothing. They lived on a farm (which was paid for) and had large gardens, chickens, pigs, etc. They did not have to worry about food but the times were tough. They made their own clothes etc. Not many shopping trips or vacations back then.
Probably the biggest effect was that a lot of their generation (and my parents generation) never invested in stocks. When my parents passed away (about 15 years ago) all of their IRA's were invested in Bank CD's. I guess after living through times like that they never trusted the market again.
The farm price recession began in the mid 1920s in America, from memory. Farming was in a downturn long before the general economy. As more than half of Americans lived on farms, it meant the prosperity of the late 1920s was very unevenly spread.

And then the 1930s Dust Bowl kicked in. The product of a lengthy drought plus poor soil management techniques.

I have read that farmers, now, are in as bad shape as the 1980s. But of course farms are far larger and more corporate, now.

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Re: When DID the stock market recover from 1929?

Post by Valuethinker » Mon Nov 04, 2019 9:46 am

nisiprius wrote:
Mon Nov 04, 2019 8:17 am
The 1920s were complex. It's taken me a while to tune in on it. It's not analogous to anything that's happened in my lifetime. The things that have been most helpful to me in understanding what was really happening have been:

--The 1935 novel, Judgement Day, by James T. Farrell--the third of the Studs Lonigan trilogy. It was written almost contemporaneously with the events it describes. Studs, unemployed and desperate to grow his savings so he can get married, listens to a a friend who says "I work for Imbray... you know what's behind these stocks? Well, I'll tell you. All, or nearly all, the public utilities of the Middle West and the brain of a man like Solomon Imbray [Samuel Insull]. What more security could you want?... I'm not a salesman but everybody in our company is privileged to sell it and if we do, we get a commission..." So Studs invests all his savings in it. As it shrinks, he's afraid to tell his father and girlfriend that he doesn't still have the modest savings they think he has. Finally he tells his dad, who says "Jesus, Studs, I wish you'd asked my advice... Imbray is in a bad spot... Imbray has to plug up his own stock [so he] has to keep getting more money by issuing new stock. He's built up a shaky pyramid and his stock is too watered. Imbray stocks are one kind not to buy. Get out of it quick, and buy some good government bonds, or radio stock. The future of this country is in radio and aviation and when I buy stocks that's what I buy."

--The memoir, The Great Depression, A Diary by Benjamin Roth, when he describes with mild surprise the way the public has suddenly become stock minded since the end of World War II. It was seen as, indeed really was, a fad, like crossword puzzles.

--Perhaps most of all, and most recently, The Day the Bubble Burst: A Social History of the Wall Street Crash of 1929, published in 1979 on the basis of extensive interviews with people who had lived through it. This is the first book that explained to me that "stock tips from the shoe shine boy" was not a generality at all. It referred to a specific "shoeblack" named Pat Bologna, who did talk to his Wall Street customers and was a conduit for stock tips.

The rise of stock market investing by small retail customers was a major phenomenon. In particular there were "ladies of the ticker" or "ladybulls," and brokerages opened special "customers' rooms for women." "Local and national surveys showed that 90 percent of salaried women had bank accounts and that of them, 80 percent held securities." A survey noted a "marked upsurge in the number of cases in which stocks are bought in the name of the husband but where all the correspondence and dealings were with the wife."

Public participation was very actively encouraged by many of the major players, notably John Jakob Raskob. American business was transformed by the discovery that important amounts of money could be raised by selling new stock issues to small retail investors; this was something new.

Market manipulation and inside information were assumed. "Bulls" and "bears" did not mean optimists and pessimists, they meant investors trying to ruin each other by making the market rise or fall.

Investment trusts, the forerunner of today's mutual funds, had a very bad name. A. P. Giannini, founder of Bank of America was worried about them. There were nearly 500 of them, and "while many of them were honestly and intelligently managed, others troubled Giannini; he suspected they were wildly speculative and so poorly capitalized they could not even pay their preferred dividends out of income from the securities they held." Many were leveraged, too. The situation was changed by the Investment Company Act of 1940.

The rising stock market was seen as some kind of transcendent miracle and on days when drama was expected, crowds formed on Wall Street, apparently not just investors, but people who just wanted to be part of the amazing thing that was happening. This, for example, is a link to a picture of a crowd during a rally.
There were some similarities though.

It was a time of enormous technological change.

"Barnstormers" brought the wonders of aviation to the American public. And scheduled airline flights began in (?) 1929?

There was great enthusiasm for new communication technology - radio in particular. Radio Corporation of America became the largest stock, I believe. Television would follow in the 1930s. We have the internet.

Catalogue retailers became huge, department stores the dominant form. Now we have Amazon.

Commodity prices were generally falling, I believe, thus leaving farmers & miners immiserated. But of course more buying power for the non-farming public (however half of Americans still lived on farms). That's very similar to right now.

American homes (urban) acquired electric lights and indoor plumbing - truly great boons. Cities decentralised along vast new networks of streetcars. To this day, many of those streetcar suburbs (Brookline in Boston, perhaps Shaker Heights in Cleveland, Leaside in Toronto) remain desirable places to live. Detached single family homes for middle class persons - so without living quarters for servants - became a thing. (England this took place in the 1930s - the white stuccoed suburban semi is one of its most recognisable urban forms). These same trends of decentralisation continue today, and another revolution in urban transport - electric vehicles & autonomous vehicles - is in prospect.

Factories switched from central belted drives (which led to them being organised in part, vertically) to electric motors - which meant larger, flatter factories. Nowadays its robots.

The mansions of then rivalled the size and grandeur of the ones being built now. It was a time of great wealth for the new captains of industry and finance. That's certainly a great similarity.

In finance there's the same emphasis on stock investing as the key to wealth and a successful retirement. The "cult of equities" loomed large.

The 1920s saw heavy lending to "Third World" countries, and series default issues followed in the 1930s.

There was great concern about the societal effects of immigration.

Interest rates are even lower now.

The one that was little-mentioned after it happened, but has more recently produced a flurry of books, was the Spanish Influenza (which was certainly not Spanish in origin). 1-2% of Americans, perhaps, died 1919-1921, mostly young and healthy (the cytokine storm of the triggered immune system resisting infection, was what killed). More people died worldwide than died in WW1 (perhaps 1-2x as many people). It's still a taboo topic among some indigenous peoples - the death rates reached 90%.
Last edited by Valuethinker on Mon Nov 04, 2019 9:49 am, edited 1 time in total.

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Re: When DID the stock market recover from 1929?

Post by AlohaJoe » Mon Nov 04, 2019 9:47 am

nisiprius wrote:
Mon Nov 04, 2019 8:17 am
--The memoir, The Great Depression, A Diary by Benjamin Roth, when he describes with mild surprise the way the public has suddenly become stock minded since the end of World War II. It was seen as, indeed really was, a fad, like crossword puzzles.
The first big change were Liberty Bonds, the first mass market, retail investment in US history. 20 million individuals (in a country of 24 million households) bought Liberty Bonds. In most cases it was the first time "investing" was really something tangible for them.

After WW1 there were two other trends that suddenly brought stocks within the consciousness of the average person. First, utilities began "customer sales", where they would sell shares of themselves directly to customers. In 1928 there were 1.8 million shares traded this way. Secondly, from 1919-1923 there was a sudden, massive, short-lived fad for employee stock ownership programs. By 1928 there were over 800,000 "employee stockholders" via these ESOPs.

But just because the public was "stock minded" didn't mean anybody really owned much in the way of stocks. Those 800,000 "employee stockholders" owned, in total, less than 1% of all corporate stocks outstanding.

Keep in mind that trading commissions in 1929 were the 2019-equivalent of $100 for every 100 shares bought or sold. Plus you had to make a long-distance phone call to New York to execute the trade. A long distance phone call from Los Angeles to New York cost the 2019-equivalent of $200 for the first three minutes. And I don't even know how you'd transfer money from your Iowa bank to your broker's New York bank in 1929 when they didn't have ACH. Maybe mail a check? All of these factors helped keep stocks far out of reach of much of the country.

From John Kenneth Galbraith's The Great Crash, 1929:
The cliché that by 1929 everyone "was in the market" is far from the literal truth. Then, as now, to the great majority of workers, farmers, white-collar workers, indeed to the great majority of all Americans, the stock market was a remote and vaguely ominous thing. Then, as now, not many knew how one went about buying a security; the purchase of stocks on margin was in every respect as remote from life as the casino at Monte Carlo.

In later years, a Senate committee [ed: the Pecora Committee] investigating the securities markets undertook to ascertain the number of people who were involved in securities speculation in 1929. The member firms of twenty-nine exchanges in that year reported themselves as having accounts with a total of 1,548,707 customers. (Of these, 1,371,920 were customers of member firms of the New York Stock Exchange.) Thus only one and a half million people, out of a population of approximately 120 million and of between 29 and 30 million families, had an active association of any sort with the stock market. And not all of these were speculators. Brokerage firms estimated for the Senate committee that only about 600,000 of the accounts just mentioned were for margin trading, as compared with roughly 950,000 in which trading was for cash.

The figure of 600,000 for margin traders involves some duplication—a few large operators had accounts with more than one broker. There were also some traders whose operations were insignificant. However, some speculators are included among the 950,000 cash customers. Some were putting up the full purchase price for their securities, although speculating nonetheless. Some were borrowing money outside the market and posting the securities as collateral. Though listed as cash customers, they were in effect buying on margin. However, it is safe to say that at the peak in 1929 the number of active speculators was less—and probably was much less—than a million. Between the end of 1928 and the end of July of 1929, a period when the popular folklore has Americans rushing like lemmings to participate in the market, the number of margin accounts on all of the exchanges of the country increased by only slightly more than fifty thousand. The striking thing about the stock market speculation of 1929 was not the massiveness of the participation. Rather it was the way it became central to the culture.

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Re: When DID the stock market recover from 1929?

Post by nisiprius » Mon Nov 04, 2019 11:02 am

Valuethinker wrote:
Mon Nov 04, 2019 9:46 am
It was a time of enormous technological change.

"Barnstormers" brought the wonders of aviation to the American public. And scheduled airline flights began in (?) 1929?

There was great enthusiasm for new communication technology - radio in particular. Radio Corporation of America became the largest stock, I believe. Television would follow in the 1930s. We have the internet.
The 1930s? You must be thinking of England. I don't remember why TV lagged in the United States, I believe David Sarnoff of RCA slow-walked it... just as he fought FM radio.

Notice how even in short passage I quoted, James T. Farrell manages to pick up that theme. Stud's father says "Imbray stocks are one kind not to buy. Get out of it quick, and buy some good government bonds, or radio stock. The future of this country is in radio and aviation and when I buy stocks that's what I buy."
AlohaJoe wrote:
Mon Nov 04, 2019 9:47 am
...First, utilities began "customer sales", where they would sell shares of themselves directly to customers...
Yes, that's what Studs Lonigan's friend was doing. "I work for Imbray... I'm not a salesman but everybody in our company is privileged to sell it and if we do, we get a commission..."
Galbraith wrote:The cliché that by 1929 everyone "was in the market" is far from the literal truth... only one and a half million people, out of a population of approximately 120 million and of between 29 and 30 million families, had an active association of any sort with the stock market...
But still, the statistic quoted by the authors of The Day the Bubble Burst, for salaried women, is impressive: "Local and national surveys showed that 90 percent of salaried women had bank accounts and that of them, 80 percent held securities." So, yes, not much stock buying in the American heartland, but a lot by urban professionals.
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Re: When DID the stock market recover from 1929?

Post by Scooter57 » Mon Nov 04, 2019 11:31 am

People are forgetting that investors who bought before the run up in 1929 were likely to have bought stock in individual companies many of which went bankrupt during the crash, so that their losses were permanent, no matter what "the market" did. Looking backward at market averages can be very misleading. "The market" is arbitrarily defined in these backward looking studies, usually in ways that support the needs of those dong the study. Is the market the S&P 500 which gets rid of its mistakes by constantly changing what it holds? Is it cap weighted, which ignores that many investors invest mostly in smaller stocks?

Also, in the 1920s and for decades after, investors who bought actual shares (vs those who bet on stock prices at bucket shops) paid very high commissions per purchase, making frequent dollar cost averaging too expensive.

Invariably I find all arguments minimizing stock losses in crashes originate from companies that only make money when you buy stocks.

And don't forget that the deflation argument, as seductive as it sounds, ignores that any benefits of deflation were wiped away by the inflation brought on by WWII.

A prolonged crash in stock prices lasting a decade or more is possible. No one should invest in stocks who is not willing to face this truth. The swift resolution of the 2008 crash taught a very dangerous lesson to younger investors who seem to think that is how all stock market crashes will play out

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Re: When DID the stock market recover from 1929?

Post by anoop » Mon Nov 04, 2019 11:45 am

Historical comparisons are pointless because we are in a very different era now. Central banks are much more in control of the market, and the market is much less reflective of what is happening in the economy. Given stocks are at an all time high, the economy should be booming, but it is far from.

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Re: When DID the stock market recover from 1929?

Post by Glockenspiel » Mon Nov 04, 2019 11:49 am

neurosphere wrote:
Sun Nov 03, 2019 6:01 pm
I think if I had been alive in 1929 I would have DCA'd throughout the downturn. :wink: When would I have broken even in that case? :wink:

But wait, I might have lost my job and my house and not have had anything to invest. If fact, I may have had to cash out at the bottom to feed myself. Hmm. Retrospective analytical personal assumptions are HARD. 8-)

But, looking at data like this certainly is educational. :beer
Yeah that's the problem. Unemployment rate was around 25% in 1933, compared with 9.9% during the Great Recession in 2009.

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Re: When DID the stock market recover from 1929?

Post by CyclingDuo » Mon Nov 04, 2019 11:53 am

Twinsfan10 wrote:
Mon Nov 04, 2019 8:47 am
My Grandparents lived though this. They were in a farm in a small town in the Midwest ( a long way from Wall Street). I asked once my Grandpa how much money they lost in the stock market crash and bank closings. He laughed and said they were raising their family and they had no extra money to invest so they lost nothing. They lived on a farm (which was paid for) and had large gardens, chickens, pigs, etc. They did not have to worry about food but the times were tough. They made their own clothes etc. Not many shopping trips or vacations back then.
Probably the biggest effect was that a lot of their generation (and my parents generation) never invested in stocks. When my parents passed away (about 15 years ago) all of their IRA's were invested in Bank CD's. I guess after living through times like that they never trusted the market again.
One set of my grandparents were in a similar situation with a typical farm/homestead (cows, chickens, huge garden, ponds with fish, orchards, etc... - all in addition to my grandfather's job for the railroad). My other set of grandparents were in banking, so they didn't fare quite as well at the time, but my grandfather did not lose his job and they made it through the crisis.

Something like only 10% of the US population had investments in the stock market back in 1929.

However, 90% of the banks in the US did. By 1933, banks only had enough to honor 10 cents for every dollar - so the impact on the 90% of the US population who held no stock market investments in 1929 were severely hurt as well due to the losses suffered by the banks. This is why the FDIC was launched by Roosevelt.

It wasn't until 1954 that the DOW finally regained its high of September 1929.
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Re: When DID the stock market recover from 1929?

Post by anoop » Mon Nov 04, 2019 12:20 pm

Glockenspiel wrote:
Mon Nov 04, 2019 11:49 am
neurosphere wrote:
Sun Nov 03, 2019 6:01 pm
I think if I had been alive in 1929 I would have DCA'd throughout the downturn. :wink: When would I have broken even in that case? :wink:

But wait, I might have lost my job and my house and not have had anything to invest. If fact, I may have had to cash out at the bottom to feed myself. Hmm. Retrospective analytical personal assumptions are HARD. 8-)

But, looking at data like this certainly is educational. :beer
Yeah that's the problem. Unemployment rate was around 25% in 1933, compared with 9.9% during the Great Recession in 2009.
U-6 peaked at around 17%, and that's the number some folks claim as "what the unemployment feels like" even though the U-3 is much lower.

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Re: When DID the stock market recover from 1929?

Post by Glockenspiel » Mon Nov 04, 2019 3:10 pm

anoop wrote:
Mon Nov 04, 2019 12:20 pm
Glockenspiel wrote:
Mon Nov 04, 2019 11:49 am
neurosphere wrote:
Sun Nov 03, 2019 6:01 pm
I think if I had been alive in 1929 I would have DCA'd throughout the downturn. :wink: When would I have broken even in that case? :wink:

But wait, I might have lost my job and my house and not have had anything to invest. If fact, I may have had to cash out at the bottom to feed myself. Hmm. Retrospective analytical personal assumptions are HARD. 8-)

But, looking at data like this certainly is educational. :beer
Yeah that's the problem. Unemployment rate was around 25% in 1933, compared with 9.9% during the Great Recession in 2009.
U-6 peaked at around 17%, and that's the number some folks claim as "what the unemployment feels like" even though the U-3 is much lower.
Interesting. Thanks for pointing this out. Based on the same U-6 metric, it appears the U-6 unemployment rate was about 37-38% in the early 1930s.

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Re: When DID the stock market recover from 1929?

Post by jumpstart » Tue Nov 05, 2019 9:01 am

SimpleGift wrote:
Sun Nov 03, 2019 6:08 pm
nisiprius wrote:
Sun Nov 03, 2019 5:41 pm
Was someone who invested at the peak in 1929 back to even by 1937, or not until 1945?
In real (inflation-adjusted) terms, a 100% stock investor was back to even by 1937 (in purple, chart below) — but this was very short lived. For most stock-heavy portfolios, it took 12-15 years to fully recover (black circles).
  • Image
    Note: All returns are total returns, inflation adjusted, with dividends reinvested.
    Sources: Monthly S&P stock returns from Shiller; monthly 10-year Treasury returns from Medium
Just as interesting, due to strong deflation (especially in 1931-33), bond-heavy portfolios regained their real value within just 4 years, with modest positive returns over the entire period. For more on the worst U.S. portfolio disasters, see this Forum thread.
Hi SG,

Are the returns in the chart predicated on rebalancing to maintain the labeled allocation, or is the allocation unchanged from Sep 1929?

Thanks.

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Re: When DID the stock market recover from 1929?

Post by SimpleGift » Tue Nov 05, 2019 9:44 am

jumpstart wrote:
Tue Nov 05, 2019 9:01 am
Are the returns in the chart predicated on rebalancing to maintain the labeled allocation, or is the allocation unchanged from Sep 1929?
Rebalanced monthly to maintain the stated portfolio mixes of stocks and bonds.

Probably not at all realistic for a real world investor, but the analysis was more intended to understand the performance of the stock and bond asset classes during the crisis of the Great Depression period.

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Re: When DID the stock market recover from 1929?

Post by tadamsmar » Tue Nov 05, 2019 10:54 am

What if a Boglehead and his nest egg instantly poofed into existence (like the sperm whale in Hitchhiker's Guide to the Galaxy) at the top in 1929 ready to retire?

Is that supposed to be a realistic scenario?

A real Boglehead would have been beavering away for decades to build an adequate nest egg. He would have used realistic projections for stock market growth. But in the last decade before his planned retirement date, his stock allocation would have doubled in value a number of times! He would have much more money than he needed come retirement. He would have shoveled a lot of money into bonds via rebalancing. And he might have prudently gone more conservative near his retirement date, age in bonds and all that.

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Re: When DID the stock market recover from 1929?

Post by arcticpineapplecorp. » Wed Nov 06, 2019 8:45 pm

One thing worth mentioning...

I heard on Tom Cock and Don MacDonald's podcast (Talking Real Money) recently something to the effect of the amount of margin (ratio) was like 90% before the Depression started. So for ever $100 invested, $90 of it was borrowed. However, it was also said that the current ratio of assets invested on margin today is only around 2%.

The similarity of how using margin can go wrong was seen in 2008 but not because of buying stocks on margin, but buying houses.

So I guess what I'm trying to say is everyone's always worried about the next Depression, but the preconditions (percentage of investment bought with margin) are nothing like they were in 29.
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Re: When DID the stock market recover from 1929?

Post by JoMoney » Wed Nov 06, 2019 9:11 pm

I know DCA is generally frowned upon around here, but consider this, by the end of 1935, someone that had been making regular contributions over the decade ending in 1935 earned:
5.9% annualized on their contributions from the beginning of 1926
5.2% annualized on their contributions from the beginning of 1927
1.8% annualized on their contributions from the beginning of 1928
-3.1% annualized on their contributions from the beginning of 1929
-2.2% annualized on their contributions from the beginning of 1930
3.1% annualized on their contributions from the beginning of 1931
19.8% annualized on their contributions from the beginning of 1932
30.9% annualized on their contributions from the beginning of 1933
20.6% annualized on their contributions from the beginning of 1934
47.7% annualized on their contributions from the beginning of 1935
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Re: When DID the stock market recover from 1929?

Post by Miriam2 » Wed Nov 06, 2019 11:51 pm

arcticpineapplecorp. wrote: One thing worth mentioning...

I heard on Tom Cock and Don MacDonald's podcast (Talking Real Money) recently something to the effect of the amount of margin (ratio) was like 90% before the Depression started. So for ever $100 invested, $90 of it was borrowed. However, it was also said that the current ratio of assets invested on margin today is only around 2%.
Frank Crumit sang about the perils of buying stocks on margin in 1929 - "A Tale of the Ticker" - (recorded September 1929) :D

https://www.google.com/search?q=frank+c ... e&ie=UTF-8
:musical_note:
This little pig went to market, where they buy and sell the stocks
This little pig came home again, with his system full of shocks
I don't understand their language, don't know what it's all about
For a bull buys up and the bear sells down - and a broker sells you out!

And here is the song
They sing the whole day long -

:musical_note: Oh the market's not so good today, your stocks look kind of sick
In fact they all drop down a point each time the tickers tick
We'll have to have more margin now, there isn't any doubt
So you better dash with a load of cash, or we'll have to sell you out!
. . .
:D

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Re: When DID the stock market recover from 1929?

Post by Valuethinker » Thu Nov 07, 2019 4:11 am

arcticpineapplecorp. wrote:
Wed Nov 06, 2019 8:45 pm
One thing worth mentioning...

I heard on Tom Cock and Don MacDonald's podcast (Talking Real Money) recently something to the effect of the amount of margin (ratio) was like 90% before the Depression started. So for ever $100 invested, $90 of it was borrowed. However, it was also said that the current ratio of assets invested on margin today is only around 2%.

The similarity of how using margin can go wrong was seen in 2008 but not because of buying stocks on margin, but buying houses.

So I guess what I'm trying to say is everyone's always worried about the next Depression, but the preconditions (percentage of investment bought with margin) are nothing like they were in 29.
Private debt to gdp is far far higher. In a deflationary scenario the real cost of that debt would cause multiple bankruptcies. Just look at US medical debt or student loans or car loans

We glimpsed the possibility of another Great Depression in 2008-09.

The financial system was on the point of collapse. World trade fell faster than in 1929 to 1931 during q1 q1 2009.

There is plenty of leverage out there.

Even post LTCM hedge funds are leveraged. Maybe only 2x for equity HFs. 5x for credit? I know the models say the exposure is limited but do we really know that is true in a crash?

Company issuing debt to buy back equity or going private via lbo does not count as margin but it is very close.

And derivatives are in essence margined. Their volume is 100x cash equities (1000x?).

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