Why was GE and GM stocks so expensive in 1929?

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thelateinvestor43
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Why was GE and GM stocks so expensive in 1929?

Post by thelateinvestor43 » Tue Jan 14, 2020 6:02 am

I was watching a documentary on the 1930 stock market crash and noticed that GE and GM had shares above $1000. Wouldn't this have been A LOT of money in those days? Why were the shares so expensive? Especially seeing that today we have shares going for $20-30.

jubby288
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Re: Why was GE and GM stocks so expensive in 1929?

Post by jubby288 » Tue Jan 14, 2020 6:48 am

I guess they didn't call it the "roaring 20's" for no reason

Another interesting tidbit is that almost all investors bought on margin back then

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Re: Why was GE and GM stocks so expensive in 1929?

Post by AlohaJoe » Tue Jan 14, 2020 6:52 am

thelateinvestor43 wrote:
Tue Jan 14, 2020 6:02 am
I was watching a documentary on the 1930 stock market crash and noticed that GE and GM had shares above $1000. Wouldn't this have been A LOT of money in those days?
Either the documentary was wrong or you misunderstood what they said. The share prices were around $70 (in 1929 dollars), which is the equivalent today of $1,000 a share.

Amazon's stock price is $1,890/share. Google's stock price is $1,439/share. So it was high but not impossibly so. Anyway, most people who owned stocks in 1929 were rich. I want to say that only 2% of Americans owned stocks back then? Today it is around 50%. After all, you couldn't exactly log on to a website and trade for $0 back then. You had to make a long distance phone call to New York. You had to pay fixed commissions that were huge. No such thing as qualified dividends. Etc etc etc.

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Re: Why was GE and GM stocks so expensive in 1929?

Post by AlohaJoe » Tue Jan 14, 2020 7:02 am

jubby288 wrote:
Tue Jan 14, 2020 6:48 am
Another interesting tidbit is that almost all investors bought on margin back then
There were 949,470 transactions for cash in 1929 and 599,237 transactions on margin in 1929. Margin transactions were only 38.69% of all purchases, according to Section 4 of the Pecora Commission report to the US Senate of 1934.

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Re: Why was GE and GM stocks so expensive in 1929?

Post by nisiprius » Tue Jan 14, 2020 7:12 am

Only Yesterday, by Frederick Lewis Allen, 1931, mentions many prices in the $100-$200 range. As you can see, GE hit $396. But there is nothing anywhere close to $1,000. It looks as if stocks were split when they reached the $200 vicinity.
Stop for a moment to glance at a few of the prices recorded on the overworked ticker on September 3, 1929, the day when the Dow-Jones averages reached their high point for the year; and compare them with the opening prices of March 3, 1928, when, as you may recall, it had seemed as if the bull market had already climbed to a perilous altitude. Here they are, side by side--first the figures for March, 1928; then the figures for September, 1929; and finally the latter figures translated into 1928 terms--or in other words revised to make allowance for intervening split-ups and issues of rights. (Only thus can you properly judge the extent of the advance during those eighteen confident months.)

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Re: Why was GE and GM stocks so expensive in 1929?

Post by nisiprius » Tue Jan 14, 2020 7:27 am

jubby288 wrote:
Tue Jan 14, 2020 6:48 am
I guess they didn't call it the "roaring 20's" for no reason...
Actually, apologies for nit-picking, but during the 1920s they didn't. They called it "the Jazz Age." The term "roaring twenties" was coined later, possibly influenced by the phrase "the roaring forties," a nickname for Broadway near Times Square. This, in turn, was likely influenced by the nautical phrase "roaring forties" referring to winds in latitudes around 40°S.
Last edited by nisiprius on Tue Jan 14, 2020 8:12 am, edited 1 time in total.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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Re: Why was GE and GM stocks so expensive in 1929?

Post by jubby288 » Tue Jan 14, 2020 8:04 am

AlohaJoe wrote:
Tue Jan 14, 2020 6:52 am
I want to say that only 2% of Americans owned stocks back then?
Looks like it was 10%

https://www.fdic.gov/about/history/timeline/1920s.html

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Re: Why was GE and GM stocks so expensive in 1929?

Post by Geologist » Tue Jan 14, 2020 8:11 am

Allen, either in Only Yesterday or his followup Since Yesterday, I think quoted Westbrook Pegler as describing it as the "Era of Wonderful Nonsense."

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Re: Why was GE and GM stocks so expensive in 1929?

Post by jubby288 » Tue Jan 14, 2020 8:43 am

AlohaJoe wrote:
Tue Jan 14, 2020 7:02 am
jubby288 wrote:
Tue Jan 14, 2020 6:48 am
Another interesting tidbit is that almost all investors bought on margin back then
There were 949,470 transactions for cash in 1929 and 599,237 transactions on margin in 1929. Margin transactions were only 38.69% of all purchases, according to Section 4 of the Pecora Commission report to the US Senate of 1934.
Thanks for the particulars, I meant to say "almost all average investors bought on margin back then", i.e., blue collar folks who couldn't afford to purchase normally. I'm sure the transaction data is correct but it doesn't tell the whole story, e.g., I believe something like 90% of banks were invested in the market making regular trades. What a crazy time!

On a related note has anyone read The Great Depression: A Diary by Benjamin Roth? Fantastic book

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Re: Why was GE and GM stocks so expensive in 1929?

Post by firebirdparts » Tue Jan 14, 2020 9:14 am

It's a tradition that stock prices are kept between $1 and about $100. This is just a convenience. For many years, people had to buy and sell stocks using paper and pencil records, and you couldn't sell a partial share without creating a mess in the ledger, so they wanted to avoid that. Record keepers could tolerate going below a dollar, but the exchanges will not tolerate it. In the paper days, they listed stock prices in eighths of a dollar and you wouldn't want to buy a 50 cent stock with a 12 cent spread. If a stock goes below a dollar, they will take the stock off the exchange. Lots of things happen for traditional reasons. Using eighths of a dollar seems pretty dumb to me, but they didn't ask me.

In an effort to keep stock prices under $100, growing companies have to split the stock. For example, when it hits $120, they could split it and you get two shares that are now expected to trade for $60 the next day. They're no rule to make you do that, so companies don't always do it.

As a side note, the price of a stock per share may be a lot of money, but that's not what "expensive" means. It depends on what you're buying for that. When people say stocks are expensive they mean compared to what they think it should be worth to them.

If a stock sells for $10,000 a share, and I think it's worth $11,000 a share, then to me it's cheap.
If a stock sells for $2 a share, and I think it's worth $1.75, then to me it's expensive.

These companies get chopped up into difference size pieces.
A fool and your money are soon partners

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Re: Why was GE and GM stocks so expensive in 1929?

Post by AlohaJoe » Tue Jan 14, 2020 10:34 am

jubby288 wrote:
Tue Jan 14, 2020 8:43 am
AlohaJoe wrote:
Tue Jan 14, 2020 7:02 am
jubby288 wrote:
Tue Jan 14, 2020 6:48 am
Another interesting tidbit is that almost all investors bought on margin back then
There were 949,470 transactions for cash in 1929 and 599,237 transactions on margin in 1929. Margin transactions were only 38.69% of all purchases, according to Section 4 of the Pecora Commission report to the US Senate of 1934.
Thanks for the particulars, I meant to say "almost all average investors bought on margin back then", i.e., blue collar folks who couldn't afford to purchase normally. I'm sure the transaction data is correct but it doesn't tell the whole story, e.g., I believe something like 90% of banks were invested in the market making regular trades.
The numbers from the Pecora Commission are for customers of brokerages. It doesn't include trades by banks, as far as I know.

Between December 31, 1928, and July 31, 1929, the total increase in number of customers of brokerages using margin was only 51,592. Only 340,019 customers used margin (out of 1,371,920 total, less than 25%). The report goes on to state
As compared with the multitude of persons and corporations holding securities throughout the country, the number of margin customers on the organized exchanges was not large, even during the boom years.
A letter published in the October 1928 Journal of Commerce showed that most brokerages only extended margin to customers with a minimum $1,000 deposit. That's the equivalent of $15,000 today. Not impossible for an average blue-collar worker but pretty steep.

I've never seen any empirical evidence that most average people were using margin to buy stocks but I'm always happy to read references and learn more. It was an interesting point in time.

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Re: Why was GE and GM stocks so expensive in 1929?

Post by sailaway » Tue Jan 14, 2020 11:08 am

AlohaJoe wrote:
Tue Jan 14, 2020 10:34 am
jubby288 wrote:
Tue Jan 14, 2020 8:43 am
AlohaJoe wrote:
Tue Jan 14, 2020 7:02 am
jubby288 wrote:
Tue Jan 14, 2020 6:48 am
Another interesting tidbit is that almost all investors bought on margin back then
There were 949,470 transactions for cash in 1929 and 599,237 transactions on margin in 1929. Margin transactions were only 38.69% of all purchases, according to Section 4 of the Pecora Commission report to the US Senate of 1934.
Thanks for the particulars, I meant to say "almost all average investors bought on margin back then", i.e., blue collar folks who couldn't afford to purchase normally. I'm sure the transaction data is correct but it doesn't tell the whole story, e.g., I believe something like 90% of banks were invested in the market making regular trades.
The numbers from the Pecora Commission are for customers of brokerages. It doesn't include trades by banks, as far as I know.

Between December 31, 1928, and July 31, 1929, the total increase in number of customers of brokerages using margin was only 51,592. Only 340,019 customers used margin (out of 1,371,920 total, less than 25%). The report goes on to state
As compared with the multitude of persons and corporations holding securities throughout the country, the number of margin customers on the organized exchanges was not large, even during the boom years.
A letter published in the October 1928 Journal of Commerce showed that most brokerages only extended margin to customers with a minimum $1,000 deposit. That's the equivalent of $15,000 today. Not impossible for an average blue-collar worker but pretty steep.

I've never seen any empirical evidence that most average people were using margin to buy stocks but I'm always happy to read references and learn more. It was an interesting point in time.
I find it hard to believe that blue collar workers of the 20s were investing in stocks at all. Perhaps they held certificates in a local company, but that would be an investment in the company, rather than something bought on margin. But then again, the decline of trade unions in this period might mean they were better off than I am thinking, being familiar with the urban blue collar workers who were having rent parties and otherwise living paycheck to paycheck.

jubby288
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Re: Why was GE and GM stocks so expensive in 1929?

Post by jubby288 » Tue Jan 14, 2020 12:21 pm

sailaway wrote:
Tue Jan 14, 2020 11:08 am
AlohaJoe wrote:
Tue Jan 14, 2020 10:34 am
jubby288 wrote:
Tue Jan 14, 2020 8:43 am
AlohaJoe wrote:
Tue Jan 14, 2020 7:02 am
jubby288 wrote:
Tue Jan 14, 2020 6:48 am
Another interesting tidbit is that almost all investors bought on margin back then
There were 949,470 transactions for cash in 1929 and 599,237 transactions on margin in 1929. Margin transactions were only 38.69% of all purchases, according to Section 4 of the Pecora Commission report to the US Senate of 1934.
Thanks for the particulars, I meant to say "almost all average investors bought on margin back then", i.e., blue collar folks who couldn't afford to purchase normally. I'm sure the transaction data is correct but it doesn't tell the whole story, e.g., I believe something like 90% of banks were invested in the market making regular trades.
The numbers from the Pecora Commission are for customers of brokerages. It doesn't include trades by banks, as far as I know.

Between December 31, 1928, and July 31, 1929, the total increase in number of customers of brokerages using margin was only 51,592. Only 340,019 customers used margin (out of 1,371,920 total, less than 25%). The report goes on to state
As compared with the multitude of persons and corporations holding securities throughout the country, the number of margin customers on the organized exchanges was not large, even during the boom years.
A letter published in the October 1928 Journal of Commerce showed that most brokerages only extended margin to customers with a minimum $1,000 deposit. That's the equivalent of $15,000 today. Not impossible for an average blue-collar worker but pretty steep.

I've never seen any empirical evidence that most average people were using margin to buy stocks but I'm always happy to read references and learn more. It was an interesting point in time.
I find it hard to believe that blue collar workers of the 20s were investing in stocks at all. Perhaps they held certificates in a local company, but that would be an investment in the company, rather than something bought on margin. But then again, the decline of trade unions in this period might mean they were better off than I am thinking, being familiar with the urban blue collar workers who were having rent parties and otherwise living paycheck to paycheck.
I mentioned it before, but the book, The Great Depression: A Diary by Benjamin Roth is worth a read. There are journal entries with names and dates that document conversations with friends and acquaintances who speculated in the market and lost everything due to margin calls. Benjamin Roth lived in Youngstown, Ohio, a place which all social classes could be found. If I have time, I can dig it up later on tonight and take a look through it.

A quick google search also yields these two quotes, though I admit that I'm not familiar with the books.

Post Keynesian Macroeconomic Theory—"By 1929, small individual investors, including blue-collar workers who had never invested in anything and knew little or nothing about the firms they invested in, were buying into the market on margin"

The Stock Market Crash of 1929: The End of Prosperity—"Borrowing money to buy stock—known as buying on margin—became commonplace. And it wasn't only the rich executive who bought stock. The average blue-collar worker was able to borrow money to buy stock against the future value of that stock"

Maybe all this activity wasn't as prevalent as I think it was, I don't know, but it surely was taking place at some level

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Re: Why was GE and GM stocks so expensive in 1929?

Post by blueskytoo » Tue Jan 14, 2020 8:21 pm

Getting away from the drift into margin issues.

High stock prices in the first half of the century were related to the fee/commissions charged on trades. They were primarily PER SHARE, not related to the money involved. There was a % or $ per transaction minimum that came into play on transactions above about $500 per share. Also, having a high price was prestigious, and added appeal to those who wished to be in on the real high flying companies.

Today, compare with Berkshire Hathaway class A shares.



There were some companies that kept their share price well above $1,000 to keep the ordinary people out. The E. I. DuPont family had such a company, Christianna Securities. In the early 50's, I believe it quoted at $10,000 or more. It only traded between family members, and the price was the net asset value of their holdings.


The comments that with margin, the average blue collar worker COULD buy stocks on margin does not lead to the idea that many did in fact, do so. Statistics show that the higher net worth investors were much more active in margin transactions.

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Re: Why was GE and GM stocks so expensive in 1929?

Post by whodidntante » Tue Jan 14, 2020 9:11 pm

I guess those silly investors felt that cars were the business of the future and a sure fire rocketship to riches. Ad companies who also create software were not trading yet, so what else would you bid up?

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