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Quote of the Day

“In all human probability, every railroad in the United States will be bankrupt over the course of the next six or eight years. There may be exceptions; but they will be uncommonly few.”

– James Bennet in the Times on August 23rd, 1857, in the midst of the “Western Blizzard” of 1857.

The Panic of 1857 would be the worst financial crisis in the history of U.S. at the time, and despite these dire words, would get much worse on August 24th, 1857.

August 23rd – This Day in Stock Market History

August 23rd, 1976 – Vanguard launches the first retail index fund, called the First Investment Trust.

The fund would begin trading on August 31st, 1976.

The fund was sponsored by a new company to the investing world – Vanguard, which had only been incorporated the year prior.

The management of the fund was based on the simple principals of John Bogle and his new company: A low cost, passively managed investment fund will outperform a majority of actively managed funds over time.

Vanguard’s fund charged a 0.20% expense ratio (which is still low today, but at the time was unheard of – average funds charged ~1.5% at the time).

The fund would launch with $11 million in assets – Today the fund (it has since changed its name to the Vanguard 500 index fund, ticker symbol: VFIAX) currently manages over $770 billion in assets, the most of any mutual fund today.

Source: The First Index Mutual Fund: A History of Vanguard Index Trust and the Vanguard Index Strategy, by John Bogle

August 23rd, 1990 – U.S. stocks decline 3% on fears of a crisis developing in Kuwait.

nyt-8-23-iraq
Source: New York Times Coverage of Iraq’s invasion of Kuwait

Iraqi troops invaded Kuwait on August 2nd, and had taken 82 British hostages on August 20th, just a few days prior to this day’s selloff. 

As the threat of U.S. involvement of war in the Mideast rises, investors prepared for the worst. 

U.S. stocks had fallen 17% over the last few weeks, the Dow had fallen from 2999.75 on July 17th to 2483 on this day. The Dow would bottom out 6% lower, at 2318, on October 16th

chart from macrotrends
chart from macrotrends

Best August 23rd in Dow Jones Industrial Average History

2011 – Up 2.97%, 322.11 points.

Worst August 23rd in Dow Jones Industrial Average History

1990 – Down 3.00%, 76.73 point


Read of the Day

Jack Bogle, the founder of Vanguard, is also a very good author. He wrote many books during his career on Wall Street, a couple of my favorites:

Common Sense on Mutual Funds: Fully Updated 10th Anniversary Edition

John Bogle – founder of the Vanguard Mutual Fund Group and creator of the first index mutual fund – is an industry pioneer. Over the years, he has single-handedly transformed the mutual fund business, and today, his vision continues to inspire investors .It has been over a decade since the original edition of Common Sense on Mutual Funds was first published. While much has changed during this time, the importance of investing and the issues addressed in the original edition of this book have not. Now, in the Fully Updated 10th Anniversary Edition of Common Sense on Mutual Funds, Bogle returns to update his in-depth look at mutual funds and the business of investing – helping you navigate through the staggering array of investment options found in today’s evolving investment landscape.

and

The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns (Little Books. Big Profits)

The Little Book of Common Sense Investing is the classic guide to getting smart about the market. Legendary mutual fund pioneer John C. Bogle reveals his key to getting more out of investing: low-cost index funds. Bogle describes the simplest and most effective investment strategy for building wealth over the long term: buy and hold, at very low cost, a mutual fund that tracks a broad stock market Index such as the S&P 500.

While the stock market has tumbled and then soared since the first edition of The Little Book of Common Sense Investing was published in April 2007, Bogle’s investment principles have endured and served investors well. This tenth anniversary edition includes updated data and new information but maintains the same long-term perspective as in its predecessor. Bogle has also added two new chapters designed to provide further guidance to investors: one on asset allocation, the other on retirement investing.

<– Go To Previous Day: August 22nd, 1720: South Sea Company sells 10,000 shares at 1,000 pounds each – the peak of the South Sea Bubble. 

Go To Next Day: August 24th, 1857: The “Western Blizzard”, or Panic of 1857 ignites as Ohio Life and Trust fails. At the time would be the worst financial crisis in the country’s history –>