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Quote of the Day

“Mr. Roger Babson had predicted the crash for several years, which shows, among other things, that he had been very wrong for several years before he suddenly became very right.”

-Fred Schwed, Where are the Customers’ Yachts

Roger Babson is famous for his call on September 5th, 1929 that the stock market would crash – The day nearly picked the top of the stock market before the Great Depression, and is now known as the “Babson Break”.

Of course, as Fred Schwed points out, he was wrong for many years before finally being right!

August 3rd – This Day in Stock Market History

August 3rd, 1927 – Stocks start the day by declining rapidly after President Coolidge announces that he will not seek reelection.

Coolidge had been seen as very “pro-business”, and the uncertainty by the nation’s next president led to selling on Wall Street (Some things never change!). Stocks fell immediately from the opening, with shares in General Motors down nearly 4%, and General Electric down 3%.

However, markets would bounce back on hopes that Coolidge will change his mind (Betting houses still had odds of 5:7 that Coolidge would win the morning after his announcement). 

Source: Wall Street and the Stock Markets: A Chronology

coolidge_chooses
coolidge_disappointing

August 3rd, 1932 – Stocks see their best day since 1929 as buyers flood the floor of the NYSE. On this day, the Dow Jones Industrial Average would rise 9.52%.

At the time, it would be the 3rd best day in the stock market’s history.

Despite worries of slowing business, General Motors declared a 25 cent dividend and wheat prices rose 5% – both taken as signs that the economy was improving.

Stocks hit an all time low July 8th 1932, when the Dow closed at 41.22. Since then many stocks are up nearly 50% from their lows. Newspaper articles begin to speak of a “New bull market” in stocks:

1932_-_best_day_since_1929

The rally in the stock market would continue beyond this day. After rising 9.5% on this day, the Dow Jones Industrial Average would rise another 2.42% the next day, and would rise another 4.98% on August 5th, and 6.33% on August 6th! – capping off one of the best weeks in stock market history.

Best August 3rd in Dow Jones Industrial Average History

1932 – Up 9.52%, 5.02 points.

Worst August 3rd in Dow Jones Industrial Average History

2007 – Down 2.09%, 281.42 points.

Read of the Day

The great depression, after a near 90% decline in stock markets, bottomed out in 1932. The experience left lasting scars on many investors, one of which was Benjamin Graham. Graham, who became famous for “creating” value investing, must have been “Like an oversexed guy in a harem” (as Buffett would say) looking at stocks in 1932. Graham started freelance writing almost exactly at the stock market bottom in 1932, the first of his articles appeared in Forbes Magazine in June and July 1932. Part 1 is located here, titled: “Inflated Treasuries and Deflated Stockholders“, where Graham opens up with a classic value investing scenario:

“Would you sell 8.5 million in cash for 5 million?…But preposterous as such a transaction sounds, the many owners of White Motors stock who sold out between $7 and $8 per share did that very thing”

With hindsight, we see the power of Graham’s value investing approach. Despite the turmoil in the markets during the depression, Graham was able to keep his wits and invest confidently knowing the fundamentals behind his investments backed up his ideas. The article is a great look into the mind of one of history’s most successful investors.

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