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Quote of the Day

“One should recognize reality even when one doesn’t understand it.”

-Charlie Munger, Berkshire Hathaway Annual Meeting, 2000.


November 3rd – This Day in Stock Market History

November 3rd, 1919– The Dow Jones Industrial Average closes at a post WW1 high of 119.62.

However, the market’s recovery from World War One would temporarily end here. From this day on, the Dow Jones Industrial Average would decline 46% over the next 2 years, finally bottoming at 63.90 on August 24, 1921.

The decline came as U.S. industry recovered from the reduction in federal and European spending after the war ended.  After the war ended, manufacturing jobs that had led to an unemployment rate of 1.4% ceased, and U.S. government spending (which totaled around $32 billion) came to an end. It took the U.S. economy a couple years to “reset”, but the subsequent economic boom that started in the early 1920’s would be one of the largest in history.

The bear market from 1919 to 1921 would be the last bear market traders would see until the great depression.  The stock market would rise more than 500% from the 1921 bottom, peaking in 1929:

Chart from Macrotrends
Chart from Macrotrends

1999 – The dot com bubble is reaching its climax. On this day in 1999 the NASDAQ closes at 3,028 – crossing over 3,000 for the first time.

At this time the NASDAQ is up nearly 300% over the last 4 years, but it would not stop there.

By December 3rd the NASDAQ would be over 3,500. By December 29th it will be at 4,000, and by March 9th 2000 the NASDAQ would close over 5,000.

The final run up in the NASDAQ in late 1999 was led by only a few companies. The NASDAQ index finished the year up 85%. Qualcomm, the best performing stock (with a share price over $5) of 1999, was up more than 2,600% and 12 stocks finished the year up more than 1,000%. But the average stock had already peaked. Besides a few hot technology companies, few other companies – or even sectors – were rising at all. The financial sector would finish the year down more than 9%. 76% of stocks in the S&P 500 were down and the average stock trading on the New York Stock Exchange was down 33.4%!

chart from macrotrends
chart from macrotrends

Best November 3rd in Dow Jones Industrial Average History

1982 – Up 4.25%, 43.41 points.

Worst November 3rd in Dow Jones Industrial Average History

1937 – Down 4.27%, 5.8 points.

Read of the Day

I found the quote of the day reading the book; Charlie Munger, The Complete Investor

The book is by Tren Griffin, writer at this (excellent) blog 25iq.com. Griffen’s book on Munger focuses on how he learns and how he thinks. Munger is a proponent of gaining “elementary, worldly wisdom” and uses a set of core mental models to make his investment decisions. The book is a collection of those models used by Munger, and is one of the best published collection of Munger quotes that I know of.