To The "Great Depression"
(New Article Each
When one thinks about the Great Depression ,( the
period of time from the stock market crash of October 1929 to the onset
of World War II on December 7th,1941) one cannot help but picture "black
& white" newsreel films of long lines of people waiting in
soup lines. Other images conjured up include those of bank runs, similar
to that seen in the Jimmy Stewart movie "It's A Wonderful
Life". To those of us who did not experience the Depression
first hand, it would seem that for the entire 1930s nobody ever smiled,
flowers never bloomed, and the sun never shined. I believe that for
younger generations who did not live at that time, that the Depression
has taken on a "larger than real life" legend.
Now I won't argue against the fact that the Depression
was one of the most trying times in American history. However all was
not always doom and gloom, even for investors. A review of the investing
history of the 1930s is in order, especially in lieu of the fact that we
have recently experienced the worse Bear Market since that era.
Could money be made even in the Great Depression?
Economically, unemployment briefly spiked up to nearly
25% in 1932, but for the entire Depression, unemployment averaged 10%, a
figure that has been reached in more modern times, even as recently as
the early 1990s. In the 30s newspapers routinely ran several pages of Help
Wanted ads (though they often were not the best paying of jobs). The
sun did shine, life was lived in Living Color, people went to
baseball games, fell in love, and ate hot dogs!
However, what is fascinating is that there was
indeed money to be made by equity investors in the 1930s! Here is a
brief review of the events of the period.....
After reaching a high of 381.1 in October 1929, the Dow
Jones Industrial Average collapsed to a low of 41.2 by the Spring of
1932. This represents a loss of 89.18% ! The market had a Price
Earnings Ratio (PE) of infinity, as Dow Jones Industrial
Average did not have any earnings! Things had to look pretty tough to
The performance of the next 5 years is amazing! From
that low of 41.2, the Dow climbed to 194.4 by 1937! This is a gain of
more than 4.71 times off of the bottom! This occurred while
the following historically relatively high Price Earnings Ratios were
recorded ....1932 &1933 Infinity, 1934 - 25.1, 1935 - 18.9
, 1936 - 16.1, 1937 - 14.5.
With much talk today about stocks having a high historic
PE ratio in spite of the super Bear Market of the last 3 years, we
should take note of the 1930s. Price Earnings ratios become distorted
during severe economic contractions. In a normal market, a decline in
prices would result in a lower price/earnings ratio. A low P/E would
then be viewed as generally bullish. The 1930s and today are different.
The pullback and economic decline of both the Depression and of recent
years reduced earnings at an extremely abnormal rate. In fact, earnings
have become more depressed than even the stock prices. In such
environments, the Price Earnings ratio becomes less meaningful. Equities
can rise substantially in such distorted economic circumstances.
It took 25 years from 1929 to 1954 for the market to
once again make a new high. However, as we have noted above, tremendous
opportunities existed for trading within this long term secular bear
market. Through the use of a defined mathematical trading strategy, such
as practiced by Lussenheide Capital Management, one can
take advantage of the opportunities inherent in such economic eras.
MORE THAN EVER, REMEMBER AND COMMIT TO STRATEGY, PATIENCE,