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Quote of the Day
“October. This is one of the particularly dangerous months to speculate in stocks in. The others are July, January, September, April, November, May, March, June, December, August and February.”
-Mark Twain
October 1st – This Day in Stock Market History
October 1st, 1928 – Dow Jones Industrial Average is expanded to include 30 stocks.
The Dow Jones Industrial Average was originally calculated from just 12 companies in its founding on May 26th, 1896.
Additional components had slowly been added to the index, and prior to this day in 1928 the index was made up of 20 companies.
The “original 30” of the Dow were:
American Can,
American Smelting,
American Sugar,
American Tobacco,
Atlantic Refining,
Bethlehem Steel,
Chrysler,
Standard Oil of New Jersey (what is now Exxon),
General Electric,
General Motors,
General Railway Signal,
Goodrich,
Honeywell,
International Harvester,
International Nickel,
Mack Trucks,
Nash Motors,
North American,
Paramount Famous Lasky,
Potsum Inc,
Radio Corporation,
Sears Roebuck,
Texaco,
Texas Gulf Sulfur,
Union Carbide,
US Steel,
Victor Talking Machine,
Westinghouse Electric,
Woolsworth,
and Wright Aeronautical.
It was perhaps no coincidence that the additional companies were added in the midst of the ‘Roaring 20s’, which saw a huge rise in the popularity of the stock market, and of course stock prices. This change occurred less than one year before the peak of the stock market prior to the great depression on September 3rd, 1929.
October 1st, 1997 – WorldCom makes offer to buy MCI Communications for $30 billion, at the time it would be the largest takeover in American History.
The deal would close in early November for a total cost of $34 billion, all in WorldCom stock which would be worthless 5 years later.
Bernard Ebbers, pictured below in the New York Times on October 2nd 1997, will be in jail until at least 2028 due to his role in WorldCom’s accounting scandal.
We have a post that goes into the WorldCom Bankruptcy in more detail, here.
October 1st, 1997 – The Asian currency crisis causes panic across the globe as Asian currencies crumble.
On this day the Indonesian Rupiah drops 6.5%, Malaysian Ringgit falls 4.5% and the Philippine peso falls 2.2%.
One fund in particular is heavily shorting the volatility from the crisis, Long Term Capital Management. The fund would have great performance over the next couple of months relative to the markets, but less than a year later would bring the financial system to its knees as its derivative bets sour.
Source: When Genius Failed: The Rise and Fall of Long-Term Capital Management
October 1st, 2008 – Warren Buffett announces his $3 billion investment in General Electric.
GE, which was particularly struggling as loans within its GE Capital arm began to default, needed a lifeline to remain in good standing. Buffett provided that lifeline on this day in 2008. His $3 billion went towards preferred shares that yielded 10% along with an option to convert to common shares in the future.
Buffett said of GE on this day after his investment was made public:
“G.E. is the symbol of American business to the world, I have been a friend and admirer of G.E. and its leaders for decades. They have strong global brands and businesses with which I am quite familiar. I am confident that G.E. will continue to be successful in the years to come.”
Like his investment in Goldman Sachs a week earlier, Buffett’s timing would prove early. At the time of his purchase, common shares of GE were at $20 per share, and would fall to $7 by March 2009.
However, Buffett held on, and the deal would ultimately net Berkshire roughly $1.7 billion in profits.
Berkshire would sell their GE stake in August 2017.
Here is how CNBC reported the story:
Best October 1st in Dow Jones Industrial Average History
2002 – Up 4.57%, 348.86 points.
Worst October 1st in Dow Jones Industrial Average History
1998 – Down 2.68%, 210.09 points.
Read of the Day
While the GE of today is just a shadow of its former self, for many decades GE was one of the most successful companies in America.
From the first incandescent light, the first TV, and the first laser, GE is not short on historical firsts. The New York Times as a great article detailing some of GE’s highlights:
GE’s History of Innovation
<– Go To Previous Day: September 30th, 1981 – The US 10 Year Treasury reaches an all time high of 15.84%
Go To Next Day: October 2nd, 1919 – President Woodrow Wilson suffers a serious stroke, which would have him partially paralyzed. –>