Considering the current economic environment and the fears about what will be the endgame of the eurozone crisis, I feel that one book that I’m reading at this time is particularly relevant. It is called “The Great Depression: A Diary.” The book is a composition of the diary of a man named Benjamin Roth, a former lieutenant in the U.S. Army during World War I who in the early 1920s opened his own law firm in Youngstown, Ohio.
Youngstown was the center of an economic boom at the start of the 20th century with the rise of its steel industry; by 1927, it was the largest steel producing region in the U.S. and had seen its population increase from 45,000 to 170,000 in a matter of 30 years. With the market crash in 1929 and the ensuing Great Depression, the industry contracted, one of many factors that led to widespread grief and hardship nationwide.
One of the things that jumps off the page when reading this book is that many of the things Mr. Roth writes sounds like they could be said today; on the other hand, there are also moments of realization where one can contrast the environment today with that of the early '30s and be thankful that we have avoided that fate to date (for example, 8-9% unemployment compared to an estimated 25-30% at the peak of the depression). Here are a couple of entries from Mr. Roth’s diary (with bold added for emphasis) that I found particularly interesting:
June 5th, 1931 – “In 1929 when the crash came all sorts of people were into the market on margin over their heads – doctors, lawyers, merchants, bootblacks, waitresses, etc. They bought stocks on tips, did not know what the company sold or made and did not know how to investigate a stock even if such a thought had occurred to them… All sense of caution was lost, stocks were bought blindly and good bonds earnings 4-5% were sneered at.” – Sounds like the tech bubble; simply throwing “.com” at the end of the name made a company worth millions.
September 2nd, 1931 – “It is difficult if not impossible to do but the conservative longtime investor who follows the general rule of buying stocks when they are selling far below their intrinsic value and nobody wants them, and of selling his stocks when people are bidding frantically for them at prices far above their intrinsic value – such an investor will pretty nearly hit the bulls-eye. Among such investors are the Morgan’s, the Mellon’s and the Baker’s. Their secret to a large extent lies in having liquid capital available and the courage to invest when things look the blackest.” – This is similar to what Charlie Munger talked about one time in a speech entitled “Art of Stock Picking”: “So you can get very remarkable investment results if you think more like a winning pari-mutuel player… And you're probably not going to be smart enough to find thousands in a lifetime… when you get a few, you really load up. It's just that simple.”
May 26th, 1932 – “Youngstown Sheet & Tube common sells yesterday on the stock exchange at $4 per share. It seems unbelievable. As far as I am personally concerned I think the company will survive the depression and that the opportunity is now on hand to buy stock cheap.” – Sounds kind of like Bank of America (BAC), which has been heard from the low teens to the current price of roughly $5.50/share.
June 9th, 1932 – World War I veterans camped out in front of the Capitol to seek an early release (originally supposed to be in 1945) of a pension for their service equal to roughly $1,000. Here is Mr. Roth’s entry: “8000 war veterans camped in Washington and refuse to leave until Congress grants their bonus.”
June 11th, 1932 - “From all parts of U.S. about 50,000 ex-soldiers are concentrating on Washington and there is the possibility of trouble.”
Eventually, the veterans established camps throughout Washington D.C., including a settlement right near the White House. On July 28th, negotiations between the protestors and the police broke down, and U.S. Attorney General William Mitchell ordered the veterans to withdraw from all government property; the federal army was called in, and pushed the marchers out of the city by using tear gas and bayonets.
July 28th, 1932 – “War veterans riot in Washington because bonus is refused and one veteran is killed by police in an attempt to picket the White House.”
Sounds kind of familiar...
Youngstown was the center of an economic boom at the start of the 20th century with the rise of its steel industry; by 1927, it was the largest steel producing region in the U.S. and had seen its population increase from 45,000 to 170,000 in a matter of 30 years. With the market crash in 1929 and the ensuing Great Depression, the industry contracted, one of many factors that led to widespread grief and hardship nationwide.
One of the things that jumps off the page when reading this book is that many of the things Mr. Roth writes sounds like they could be said today; on the other hand, there are also moments of realization where one can contrast the environment today with that of the early '30s and be thankful that we have avoided that fate to date (for example, 8-9% unemployment compared to an estimated 25-30% at the peak of the depression). Here are a couple of entries from Mr. Roth’s diary (with bold added for emphasis) that I found particularly interesting:
June 5th, 1931 – “In 1929 when the crash came all sorts of people were into the market on margin over their heads – doctors, lawyers, merchants, bootblacks, waitresses, etc. They bought stocks on tips, did not know what the company sold or made and did not know how to investigate a stock even if such a thought had occurred to them… All sense of caution was lost, stocks were bought blindly and good bonds earnings 4-5% were sneered at.” – Sounds like the tech bubble; simply throwing “.com” at the end of the name made a company worth millions.
September 2nd, 1931 – “It is difficult if not impossible to do but the conservative longtime investor who follows the general rule of buying stocks when they are selling far below their intrinsic value and nobody wants them, and of selling his stocks when people are bidding frantically for them at prices far above their intrinsic value – such an investor will pretty nearly hit the bulls-eye. Among such investors are the Morgan’s, the Mellon’s and the Baker’s. Their secret to a large extent lies in having liquid capital available and the courage to invest when things look the blackest.” – This is similar to what Charlie Munger talked about one time in a speech entitled “Art of Stock Picking”: “So you can get very remarkable investment results if you think more like a winning pari-mutuel player… And you're probably not going to be smart enough to find thousands in a lifetime… when you get a few, you really load up. It's just that simple.”
May 26th, 1932 – “Youngstown Sheet & Tube common sells yesterday on the stock exchange at $4 per share. It seems unbelievable. As far as I am personally concerned I think the company will survive the depression and that the opportunity is now on hand to buy stock cheap.” – Sounds kind of like Bank of America (BAC), which has been heard from the low teens to the current price of roughly $5.50/share.
June 9th, 1932 – World War I veterans camped out in front of the Capitol to seek an early release (originally supposed to be in 1945) of a pension for their service equal to roughly $1,000. Here is Mr. Roth’s entry: “8000 war veterans camped in Washington and refuse to leave until Congress grants their bonus.”
June 11th, 1932 - “From all parts of U.S. about 50,000 ex-soldiers are concentrating on Washington and there is the possibility of trouble.”
Eventually, the veterans established camps throughout Washington D.C., including a settlement right near the White House. On July 28th, negotiations between the protestors and the police broke down, and U.S. Attorney General William Mitchell ordered the veterans to withdraw from all government property; the federal army was called in, and pushed the marchers out of the city by using tear gas and bayonets.
July 28th, 1932 – “War veterans riot in Washington because bonus is refused and one veteran is killed by police in an attempt to picket the White House.”
Sounds kind of familiar...
