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Quote of the Day
“A crash is coming, and it may be terrific. …. The vicious circle will get in full swing and the result will be a serious business depression. There may be a stampede for selling which will exceed anything that the Stock Exchange has ever witnessed. Wise are those investors who now get out of debt.”
-Roger Babson, September 5th 1929.
His comments would cause a sharp drop in stocks known as the “Babson Break”, which would mark the beginning of the stock market declines in the great depression.
September 5th – This Day in Stock Market History
September 5th, 1929 – A drop in stocks that became known as the”Babson Break” occurs. It would be the first of several significant selloffs that would ignite the Great Depression.
While September 3rd 1929 would mark the true high for the stock market over the next 25 years, September 5th started the historical fall in equity prices that would bring in America’s Great Depression.
Around 2pm September 5th 1929, financial advisor Roger Babson was quoted on the Dow Jones Financial News tape, “I repeat what I said at this time last year and the year before, that sooner or later a crash is coming.”
The warning was enough to spook stock market traders. In the last hour of trading AT&T lost 6 points, Westinghouse lost 7 and U.S. Steel fell 9 points. The Dow Jones Industrial Average would fall 2.59% on this day in 1929, however that would pale in comparison to the drops in stock market would soon face in October.
The “Babson Break” represents the first of many stock market declines that would occur through 1932 as the general stock market would fall 90%.
Source: p.48, A Random Walk Down Wall St.
Best September 5th in Dow Jones Industrial Average History
1939 – Up 7.26%, 10.03 points.
Worst September 5th in Dow Jones Industrial Average History
1933 – Down 3.32%, 3.44 points.
Read of the Day
Roger Babson was a very interesting and influential historical figure. Besides being a respected investor and businessman, he founded several universities, several research organizations and even helped convince his university dean at MIT to let him do a “business engineering” degree, which created the foundation for today’s MBA degrees.
Babson had “Ten Commandments” he followed in investing and encouraged his readers to do the same. These ideas have become commonplace today, but practicing of these principals was forward thinking in his time.
His commandments were:
- Keep speculation and investments separate.
- Don’t be fooled by a name.
- Be wary of new promotions.
- Give due consideration to market ability.
- Don’t buy without proper facts.
- Safeguard purchases through diversification.
- Don’t try to diversify by buying different securities of the same company.
- Small companies should be carefully scrutinized.
- Buy adequate security, not super abundance.
- Choose your dealer and buy outright (i.e., don’t buy on margin.)
Babson wrote numerous works on money and finance. Most notably his book Fundamentals of Prosperity
(The book is currently free for Amazon Kindle readers – so check it out!)
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