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Quote of the Day
“The line separating investment and speculation, which is never bright and clear, becomes blurred still further when most market participants have recently enjoyed triumphs. Nothing sedates rationality like large doses of effortless money. After a heady experience of that kind, normally sensible people drift into behavior akin to that of Cinderella at the ball. They know that overstaying the festivities ¾ that is, continuing to speculate in companies that have gigantic valuations relative to the cash they are likely to generate in the future ¾ will eventually bring on pumpkins and mice. But they nevertheless hate to miss a single minute of what is one helluva party. Therefore, the giddy participants all plan to leave just seconds before midnight. There’s a problem, though: They are dancing in a room in which the clocks have no hands.”
-Warren Buffett from his Letter to Shareholders in 2000
March 26th – This Day in Stock Market History
March 26th, 1929 – The New York Stock Exchange sets a new record for most shares traded in a single day. On this day in 1929 8,246,740 shares traded hands in a wild day on Wall Street that saw prices collapse early on, an then quickly recover by the markets close.
Prior to this day in 1929, stock had been negative for 8 consecutive days, with the Dow Jones Industrial Average falling about 7.1% over that time. The newspapers reported that on the morning of March 26th 1929, many margin calls were issued, leading loads of stocks to be liquidated on the exchange that morning.
The Dow would open at 297 on the day, and get as low as 281, (an intra-day decline of more than 5.3%!) before recovering and closing at 296. Shares of some well known companies such as General Motors would fall 10% or more before recovering. By the time the markets closed the ticker was running more than 90 minutes behind.
With hindsight, it appears that this was s sign of the rising unease of investors as the market roared higher in 1929. The Dow would reach its pre-great depression peak September 3rd, 1929 with a high of 381.17.
Best March 26th in Dow Jones Industrial Average History
1907 – Up 3.17%, 1.75 points.
Worst March 26th in Dow Jones Industrial Average History
1932 – Down 2.95%, 2.3 points.
Read of the Day
While doing some research for this day’s article I came across an interesting paper that looked at the relationship between the number of mentions of the stock market in the New York Times, and future volatility.
AbstractIn this paper we will study “weak signals” by concentrating on the journalistic texts of The New York Times before the stock market crashes of 1929, 1987 and 2000.The paper argues that, even if information and communication technology advanced dramatically from the 1920s to 2000, the flaws of business journalism in writing about stock markets have remained almost the same: their reporting is too enthusiastic (or positive) and uncritical, and therefore incapable of effectively detecting the weak signals of impending collapses on the Stock Exchange. Thus we might conclude that neither the increase in the speed of spreading the information nor the accessibility to such information necessarily leads to greater efficiency in using it.The New York Times itself stated repeatedly that the policy of the newspaper has always aimed at “not making financial crises worse”. Thus the pages of the newspaper contain more positive than negative articles on stock exchanges.