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Joshua Kennon

Folks, The "Great" Crash Happened in 1933, Not 1929

By October 16, 2008

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I've been getting messages from readers regarding my latest blog, which explained how we are using a special trading technique to generate huge profits at my companies. Some have told me that no one will be able to take anything I say seriously, while others have accused me of an "egregious" error - any moron, I'm told, should know that the real problems in the stock market were in 1929, not the year I mentioned - 1933.

Time for a financial history course. Let's take a look at Exhibit A:

Stop relying on television and movies to give you an idea of history. It's ridiculous. Pick up a book! This is why the cycles repeat themselves - some people just don't pay attention to the lessons that history has provided. The 1929 crash was horrible because of the sudden percentage drop that occurred. It was immediate. It was powerful. At the time, average investors were speculating using 10-1 margin due to a lack of regulatory rules, so at this time, even a small rise or fall could make or break fortunes. We haven't experienced anything like the jolt of the 1929 period.

It's 1933 that we should all fear. Our current crash has happened over the course of a year, as stocks unwind, falling downward. Unless you work on Wall Street, we haven't had a singular event when we all show up and our assets have dissipated, with people jumping out of windows. Instead, we've had this constant downward pressure.

Let's just be thankful that we are able to say this past week was the worst sustained drop "since 1933". If we had actually been comparable to 1933, the Dow Jones Industrial Average would be somewhere between 1,750 and 2,000. Stocks would be trading than less than the cash many of the companies would have in the bank.

Comments
October 16, 2008 at 1:05 pm
(1) AC says:

Oh, I dunno about 1933 being the correct year. If I am reading your graph correctly (probably not) it was actually the middle of 1932!

Splitting hairs aside (which is fun if you want to be annoying), for people to seriously call your advice into question over something that occurred over a several year period is ludicrous.

October 16, 2008 at 1:30 pm
(2) Joshua Kennon says:

You shouldn’t doubt yourself, AC, you’re absolutely correct about the technical bottom. It occurred in 1932. We talk about 1933 because you can see where the market started to recover in ’32, but then crashed again to just above the low it hit the prior year in ’33. It was then, finally, after four or five brutal years, that you can see the long, slow, upward movement in the DJIA. It’s at those lows that those who had been buying could get the greatest values. It was the depth of the Great Crash, when you had watched every $1 turn into about $0.12 that things finally started their upward march, again.

The really interesting thing is that most people just look at the chart, not realizing that history has proven a vast majority of returns for investors originate from reinvested dividends. If you had been buying stocks, reinvesting the dividends, and pouring money into the strongest companies during this mess, you would have gone positive many – and I mean MANY – years earlier than someone who just bought, held, and cashed their dividend checks.

The same thing is happening today, to some extent, when people discuss the market being the same level it was 10 years ago. That’s true on a price basis, but when you look at the big components of the S&P, for instance, huge portions of profits have been paid out as share repurchases and cash dividends. So, as an owner of Exxon-Mobile, Wal-Mart, General Electric, or Coca-Cola, the value of those reinvested amounts isn’t reflected in the chart. You’re actually better off than if you hadn’t invested, even though it LOOKS like you’ve gone sideways for ten years.

October 17, 2008 at 10:54 am
(3) AC says:

I see what you mean as 1933 being the final low point.

I started to seriously watch the stock marked back near the end of last year to see it start it’s roller coaster ride, which makes me very new to the financial world though I have been around the block of life a few times. I have seen the folly of making decisions just off someone’s advice even though that someone is well meaning.

With the crash course I have been doing on learning the lingo about stocks, ETF, funds, brokers, value investors, traders these past 11 months, I had categorized my thinking into 2 camps. I am either buying a company or I am gambling.

Once I got a responsible amount of savings on hand and continue practicing dollar-cost averaging, I had planned on allocating some funds to gamble, a.k.a “play” the market.

However, after reading your posting on the “sell, open puts”, I see that there are other options to I need to look at in much more detail that don’t follow into the “gambling” category. I don’t have the capital to use such a technique at this point but thanks to your clear writing on it it is now on my radar.

I don’t have the capital to do such a strategy so until then, I will keep plugging along writing software/websites, live below my income and stay disciplined to make my money work for me.

I really appreciate the wealth of information on your website. You have helped get started responsibly into investing and even in the midst of all this I am better off than what I was 10 months ago.

AC – has used 3 of his 20 punch card

October 17, 2008 at 8:29 pm
(4) Salvador Veiga says:

Hello Joshua… When can we see Lesson number 5 on Cash Flows ? I’ve been trying to email you but for 2 months never got any kind of feedback… I think that section of the website is of tremenduous value and the Lesson 5 is kind of needed since it’s one of the most important parts in investing…

Best,

Salvador

October 23, 2008 at 12:18 pm
(5) A Real Beginner says:

Hi guys,

I’ve signed up for these free useful advises for a few months now and had kept myself updated on these advises. However I still can’t decide on how or when I should start investing. I’ve read the Investment for beginners and since I have only very limited cash flow, I’m not sure what I can do with it. Any comments or help is appreciated. Thanks in advanced.

October 24, 2008 at 11:05 am
(6) AC says:

@A Real Beginner

If you are asking which stocks YOU should start buying, you are not going to find that here. There are articles Joshua has graciously provided that tell you “how” to decide whether or not to buy ownership into a company.

It is up to you to decide what your comfort level is at in making the decision.

If your question is more on the actually purchasing as in which broker to use once you have made your decision, then I suggest looking at Schwab, Scottstrade and Sharebuilder.

I chose Sharebuilder.com. I have my meager earnings deposited monthly into the account. Then once the account reaches a certain amount, I have a trade automatically executed for a couple of companies so that my fee percentage is kept at a minimum.

Once I finish with my savings to cover 6 months of living expenses, I will be a bit more active but until then this is getting me started in dollar costing into owning stock.

October 24, 2008 at 11:09 am
(7) AC says:

Oh, I follow Jim Jubak over at MSN Money to get his perspective. I like how he explains what leads up to his decisions and then his reasoning to sell, hold or buy.

I don’t always agree with him as he is focusing on trading not so much in investing, but it is a valuable learning exercise before I start putting more of my money on the line.

October 24, 2008 at 12:52 pm
(8) Dr. Davonia says:

Yall are retatedd .
it happend in 2004!

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