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Cartoons of the 1929 Crash

June 5, 2020 by Jon

Newspapers have limited real estate. It should be no surprise that the stock market failed to make the front page every day of 1929. It was competing against news about prohibition, bootleggers, tariffs, and politics for the top spot.

The market really only dominated the headlines for about two weeks out of the year. The big week was at the end of October. The rest was sporadically spread out during the year.

But in those two weeks, editorial cartoonists wonderfully captured the speculative phenomenon of the market bubble and crash. The gambling nature, the easy money mentality, mistiming the top, the promises never to do it again…until next time, they captured it all.

After digging through the headlines of 1929, the cartoons were too obvious to be ignored, so I grabbed some to share. Take a look: Continue Reading…

How to Take a Chance by Darrell Huff

June 3, 2020 by

Buy the Book: Print

Darrell Huff offers an introduction to the theory of probability that you can find in all aspects of life. He weaves in bits of humor and literature to explain the different concepts with real-life examples of coin tosses, card games, roulette, and dice that should help you avoid expensive mistakes.

The Notes

Timeless Lessons from Bubbles

May 29, 2020 by Jon

Every market bubble reveals important lessons after it bursts. Some of those lessons are one-off, tied to a specific bubble. The important lessons emerge each time prices reach euphoric heights.

John Kenneth Galbraith highlighted two such lessons from the 1920s bubble during a Congressional Hearing in 1979. His first is discussed often (so I’ll keep it short). His second can be found outside bubblier times too.

A sound idea carried too far

Prices first went up because of good earnings. Then they took leave of reality. The market was taken over by people for whom the only important fact was that prices were going up. Their buying then put up the prices but with the certainty that when the supply of such speculators — and gulls — ran out, as eventually it would, the upward movement would come to an end and prices would collapse in the rush to realize and get out. This, to repeat, is the classic speculative sequence.

If the only reason for buying a stock is because the price went up…buyer beware. Continue Reading…

Timeline of the 1929 Market Crash

May 27, 2020 by Jon

On October 29th, 1979, John Kenneth Galbraith sat before a Congressional Committee to answer one question. Can it happen again?

It was the Great Depression. For all the worry about repeating the depression, the real talk centered on what preceded it — the Great Crash. And Galbraith offered his expertise on the subject.

Not perhaps since the siege of Troy has the chronology of a great event been so uncertain. As a matter of fact, economic history, even at its most violent, has a much less exciting tempo than military or even political history. Days are rarely important. All of the autumn of 1929 was a terrible time, and all of that year was one of climax. With the invaluable aid of hindsight it is possible to see that for many previous months the stage was being set for the final disaster.

Galbraith then set about clearing up the issue. The Great Crash was not a single day but a sequence of events that started months in advance. Galbraith’s prepared statement offered a clear timeline that culminated in what everyone knows as the 1929 Crash. Continue Reading…

The Uncomfortable Truth

May 22, 2020 by Jon

What’s the biggest determinant of investing success? Smarts, information, strategy, or skill are all worthy possibilities.

But one stands out above all the others:

The truly successful stock market investors of history have been no more intelligent than most less successful investors. In most instances — they have had no better sources of information than other investors. The qualities they have had in common have rather been qualities of temperament, which is why no one has ever found out how to get rich by taking courses or reading a book or reading articles (including this one). But those temperamental qualities are crucial and relate to the points I have been trying to make here: the road to success in investing is paved with independence of spirit, decisiveness, and the courage of one’s convictions. — Peter Bernstein

The market naturally triggers emotional responses that lead to mistakes. Those best equipped to handle those triggers are more likely to succeed.

That shouldn’t come as a surprise. Most things in life worth achieving require mental toughness to get through the obstacles that are certain to arise. And investing is full of obstacles. Continue Reading…

Warren Buffett: The Best Reason for Selling

May 20, 2020 by Jon

In a perfect world — assuming everything goes as planned — the best time to sell an investment is at its peak price. In reality, that’s called luck.

That’s why selling is an imperfect art. The overwhelming outcome for most sell decisions is too soon or too late.

Warren Buffett actually recognized it early on to never expect perfection:

Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good results. The better sales will be the frosting on the cake.

It’s a byproduct of Ben Graham’s concept of a margin of safety. A wide margin of safety (between price and value) leaves room for error but you still make a profit. Continue Reading…