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Quote of the Day
“Investors can always buy toads at the going price for toads. If investors instead bankroll princesses who wish to pay double for the right to kiss a toad, those kisses had better pack some real dynamite. We’ve observed many kisses but very few miracles. Nevertheless, many managerial princesses remain serenely confident about the future potency of their kisses — even after their corporate backyards are knee-deep in unresponsive toads.”
-Warren Buffett in is 1981 Letter to Shareholders.
May 28th – This Day in Stock Market History
May 28th, 1906 – San Francisco stock exchange reopens after the 1906 earthquake on April 18th.
The earth quake was one of the worst in American history. 80% of the city would be destroyed by the earthquake or resulting fires and 3,000 would die from the 7.9 magnitude earthquake.
May 28th, 1962 – The Dow falls 5.71%, 34.95 points, on JFK’s confrontation with the steel industry.

The day’s decline was the worst for the stock market since 1929, and second largest point decline in history at the time.
Steel stocks had taken the brunt of the decline, but on this day almost no company was spared. IBM shares were down as much as 11% at one point. Smaller cap stocks were down more than 20%.
JFK’s fight with the steel industry began in April 1962, when companies attempted to initiate a $6 per ton price increase. Kennedy demanded that U.S. steel companies rollback the price increase, and threatened to cancel all orders from the Department of Defense for any companies that did not reduce prices.
However, steel companies were facing trouble well before Kennedy picked this fight in 1962. Steel companies were already seeing a slowdown as early as 1960, and by the end of this day in 1962, most steel companies’ shares were down more than 50% from their 1960 highs.
The decline in this period is now commonly referred to as the “Kennedy Slide”, when the stock market fell more than 25% over the course of 7 months.

For more, Jason Zweig from the Wall Street Journal has a great article telling the story of the “1962 Flash Crash” here.
May 28th, 2009 – Time Warner spins off AOL after it’s merger 8 years prior. At the time of the merger AOL had a market cap of about $192 billion. The new AOL would have a market cap of about $3.3 billion, down more than 97% from its tech bubble highs.

The deal is widely considered one of the worst in American business history.
Best May 28th in Dow Jones Industrial Average History
1970 – Up 3.16%, 20.95 points.
Worst May 28th in Dow Jones Industrial Average History
1962 – Down 5.71%, 34.95 points.
Read of the Day
Our quote of the day is part of a great section from Buffett’s 1981 letter to Berkshire Hathaway shareholders:
However, we suspect three motivations – usually unspoken – to be, singly or in combination, the important ones in most high- premium takeovers:
(1) Leaders, business or otherwise, seldom are deficient in animal spirits and often relish increased activity and challenge. At Berkshire, the corporate pulse never beats faster than when an acquisition is in prospect.
(2) Most organizations, business or otherwise, measure themselves, are measured by others, and compensate their managers far more by the yardstick of size than by any other yardstick. (Ask a Fortune 500 manager where his corporation stands on that famous list and, invariably, the number responded will be from the list ranked by size of sales; he may well not even know where his corporation places on the list Fortune just as faithfully compiles ranking the same 500 corporations by profitability.)
(3) Many managements apparently were overexposed in impressionable childhood years to the story in which the imprisoned handsome prince is released from a toad’s body by a kiss from a beautiful princess. Consequently, they are certain their managerial kiss will do wonders for the profitability of Company T(arget). Such optimism is essential. Absent that rosy view, why else should the shareholders of Company A(cquisitor) want to own an interest in T at the 2X takeover cost rather than at the X market price they would pay if they made direct purchases on their own? In other words, investors can always buy toads at the going price for toads. If investors instead bankroll princesses who wish to pay double for the right to kiss the toad, those kisses had better pack some real dynamite. We’ve observed many kisses but very few miracles. Nevertheless, many managerial princesses remain serenely confident about the future potency of their kisses – even after their corporate backyards are knee-deep in unresponsive toads.
You can read the rest of Buffett’s letter here: 1981 Berkshire Hathaway Letter to Shareholders
Go To Next Day: May 29th – 1946, The Dow Jones Industrial Average hits a new post WW2 high, would be the last new high for the next 4 years. –>