newjerseynewsroom.com

BY WARREN BOROSON

NEWJERSEYNEWSROOM.COM

BOROSON ON MONEY

In case you hadn’t noticed, we’re now in the month of October, the month that witnessed — in 1929 — the Great Crash.

I myself don’t remember much about the Crash because, at the time, I was minus 7 years old.

But I’ve read up on the Crash. And let me ask you some questions.

1. How much did the stock market actually lose in 1929?

2. How much did AT&T lose during 1929?

3. How much money would you have made if you had invested at the end of 1929?

Answers:

There was a mere 17 percent decline. It was a correction, not a bear market. To quote Prof. Robert Sobel of Amherst, “The bare statistics taken by themselves seem to indicate a mixed to poor year for stocks, but not one that wa disastrous.” True, the market had been down 48 percent or so earlier in the year, but there had been a big rally before the year ended. In 1930, what story did The New York Times vote to be the biggest story of 1929? Richard Byrd’s exploration of Antarctica.

AT&T was up 29.5 percent. American Can, up 12.5 percent GE, up 22 percent. Standard Oil of New Jersey, up 11.12 percent. It’s a market of stocks, not a stock market.

If you had invested at the end of 1929, by 1933 you would have lost 77 percent of your money. 1929 was not a bad year for the stock market. 1930 (down 31 percent), 1931 (down 52.7 percent), and 1932 (23.1 percent) were bad years.

To understand the crash and the Depression that followed, you really must understand Marxist economic principles, Marxist philosophy, and the Marxist interpretation of history. Because in 1929, this gentleman put $250,000 into the stock market.

http://blog.sarcasmsociety.com/wp-content/uploads/2010/03/Groucho-Marx.jpg

Groucho was your typical born-yesterday investor. If he were alive today, he would have bought…Lehman brothers. Yet he was always a stingy guy, remembering the hard times of his youth, when he and his three brothers had shared a single bed. Later in life, he paid for everything in cash — even when he bought a home. And when he became wealthy after such Broadway hits as “Animal Crackers” and “The Cocoanuts,” he bought an estate on Great Neck, Long Island, along with a 1929 Runabout Packard convertible. He also joined the Lakeville Country Club. In real life, he wasn’t too proud to join a club that would have him as a member.

Julius Marrix (Groucho’s real name) had $250,000 left over, and in 1929 he put it all into the stock market.

In the 1920s, the stock market had gone crazy.

John Kenneth Galbraith wrote, “Never before or since have so many become so wondrously, so effortlessly, and so quickly rich.”

Investors didn’t know about price-earnings ratios, price-sales ratios, EBITA, the future value of current earnings, comparing stock earnings with the yield on 10-year Treasuries, checking a company’s book value per share. All that most people seemed to know what that stock prices might bounce around a bit, but they always went back up.

In 1921, RCA was $1.25. In 1929, it was $114.75.

Dupont went from $310 to $525 — up 69 percent.

Montgomery Ward, from $117 to $440 — up 206 percent.

Wright Aeronautic, from $69 to $289 — up 318 percent.

Mrs. Amy Boulter of West 83rd Street in New York City had bought 200 shares of RCA in 1923 at $2 a share. Her stock certificates were lost in the mail. She finally got her certificates in 1929. Her $400 had turned into $18,000.

And it was so easy to invest in stocks! Stockbrokers were everywhere. You didn’t have much money? You could borrow, at 10 cents on the dollar.

And if you were skeptical of the stock market, it was like being a communist in the 1950s. Everyone despised you.

Professor Sobel tells this story:

Charles Merrill, who had survived the 1907 crash, thought prices were too high in 1929. When he told this to his friends they told him that he was off his rocker and should see a psychiatrist. Merrill took their advice. He went to a psychiatrist. The psychiatrist listened to Merrill, agreed with him, and both then walked to their brokers’ offices and sold all their stocks.

Let me say that, in general, anyone who takes in investment advice from a psychiatrist ought to have his head examined.

What advice did smart investors give?

On Aug. 20, 1929, The Wall Street Journal wrote that “the outlook for the fall months seems brighter than at any time in recent years.”

The New York Times wrote on Oct, 29 that “the investor who purchases securities at this time with the discrimination that as always is a condition of prudent invsting may do so with utmost confidence.”

You remember Cal Coolidge? Silent Cal? A man was introduced to the president, and said, “I made a bet that I could get you to say more than two words.” “You lose,” said Coolidge.

When Dorothy Parker, that wonderful wit, was informed that Coolidge had died, her question was: “How can they tell?”

Before leaving office in 1929, Calvin Coolidge said that “Stocks are cheap at current prices.”

Calvin Coolidge talked too much.

Dr. Irving Fisher of Yale told everyone that stocks “had reached what looks like a permanently high plateau.” When the market started going down in the fall, Dr. Fisher called it a temporary decline.

After all, he explained, investors had not yet recognized that Prohibition, the end of alcohol consumption, would help the economy enormously — by making American workers “more productive and dependable.” (Actually, Prohibition hurt the economy by weakening a heretofore prosperous industry, the production of spirits.)

“A severe depression … is outside the range of probability.” So said the Harvard Economic Society.

Bernard Baruch was a famous and shrewd investor. It was Baruch who said you should buy straw hats in January. He also said that the only people who bought at the lows and sold at the highs…were liars.

Baruch is rumored to have sold out when a shoeshine boy gave him a stock tip.