Every bull market bust comes with lessons. One is that bull markets offer the illusion of permanence.

For example, the longer a bull market drags on, returns are more likely to be normalized and expected. When double-digit returns are all you know, the easy assumption is to expect more of the same.

It’s a repeated lesson because there’s always a new crop of investors experiencing their first bull market and some of the old crop forgets what the last bear market was like.

But some market busts are so impactful it creates a sea change. The hardest taught lesson was felt at the depths of 1932. Continue Reading…

Fred Schwed had a front-row seat to the Great Crash. He worked at a trading desk of a brokerage house since he left college. A week earlier — on October 24 — was the first moment he realized something was off.

October 24th started out like any normal day…until 11 am. The time is important because that was the deadline for margin calls.

The day before, in the final hour of trading “someone had pulled the plug, and an avalanche of common stock had descended on the reluctant and retreating buyers.” That selling triggered margin calls.

If you borrow money to buy stocks, you must meet certain minimum margin requirements. Falling below the minimum triggers a margin call and sticks you with two choices: add cash to your account or sell stocks.

In the booming market of 1929, how many investors using margin had extra cash lying around? Practically none is my guess. Continue Reading…

Oliver B. Adams grew up a poor kid who worked in a grocery store. He wasn’t a clever kid or imaginative. There was nothing special about him. Nothing, except for his obviousness. Yet, that simple trait led him to the top of the advertising business.

Two of his obvious successes stand out. The first was creating a fancy ad campaign for a bond paper company. Adams rushed over to the paper mill to gather the facts. He got a crash course in how the paper was made: the ingredients (white rags), the type of water used, how it was dried, and even the inspection process.

Then the obvious solution for the ad campaign came to him. Adams’s proposed highlighting all the ingredients: “every bond paper is made with carefully selected rags…pure filtered water… loft-dried…hand-inspected.”

The CEO was dumbfounded. There’s was nothing original about it. Everyone already knew that about bond paper. But Adams quickly explained, “I never knew. The entire agency uses the stuff daily and none of us know. Who are you advertising to? Paper makers or paper users?” Continue Reading…