August 25, 2010 Some additional thoughts to the note on August 24, 2010

1. During the depression, passbook savings accounts were being sold for $0.30 on the dollar.

2. US Government Bonds were selling for $0.82 on the dollar.

3. I think that companies with a proper self sustaining balance sheet, should prevail over the long term.

4. I think that in the end, true conservative value will continue to be rewarding. Question becomes, “What is a true conservative value?”

August 24, 2010 Notes and thoughts while reading ‘The Great Depression: A Diary’ by Benjamin Roth

1. March 1941, stocks sold at 6X earnings, 5%+ dividends and bonds paid interest of 2%. Dec. 1941, stocks sold at 5X earnings, >10% dividends

2. Short term predictions do not come true. Competent analysis with a margin of safety is the key. Patience and Liquidity is required. Avoid forced selling.

3. Great Depression. Seems to me, most of the permanent losses were caused by speculation and inability to weather the storm (need of capital).

4. Some type of accessible liquidity is always necessary to take advantage of unexpected investment opportunities.

5. Investor must have a sense of business values – be conservative, act quickly when opportunity is seen. Make sure you see value, not a trap.

6. Owning Real Estate during the Great Depression was treacherous. Rents stopped coming in or deflated. Expenses could not be serviced.

7. Patience and Courage, can not be over emphasized in investing.

8. To build wealth (even in depressions). 1. Save $$, 2. avoid speculation, 3. Make $$ work for you thru conservative investments.

9. Prudence and patience in investing seemed to work during The Great Depression. Quality and fundamentals were key. Buying during fear worked.

10. It looks as though The Great Depression key signs were, 1) no supply of $$, 2) employment levels, and 3) Capacity Utilization ( was < 20%)

11. “Most people did not realize The Great Depression was over until a year or so after the turn had been made.” Benjamin Roth author of ‘The Great Depression: A Diary’

12. The following link will take you to some notes I took as I reread a few chapters from 1929-1937 ‘101 Years on Wall Street’ by John Dennis Brown Link

I have reposted these notes below as well.


1. Autumn collapse cost DOW more than 49%.

2. “Halting the panic was like trying to catch a cannonball.”

3. “Hundreds of funds were promoted, many of them highly leveraged.” “The professional management would be the last great sales cliché of the 1920s.”

4. “Banks a cozy part of the pools.” “National City was valued at over 100X earnings, and ratios of 50X were common for money center banks.”

5. Despite the shattering 1929 losses, the decade finished up 132% for the decade.

6. “By the end of the summer, stock prices, margin debt and speculative fever were all at record levels, as were price – earnings ratios.”


1. World depression began.

2. DJIA rallied 48% in April. “It was a terrible trap for bulls, seducing many” who avoided the October 1929 panic. Huge volume gave the rally authenticity. Trade and industry lagged the rally.

3. Bear market would not end for another 18 months. ( I think that calculates to October 1932).


1. Worst year in Stock market history. DJIA lost 53% for the year. Transports lost 65.2%.

2. By February Dow had gained 23%.

3. “Business was bad and getting worse.” Lots of unemployment and bank failures (200 per month).

4. Market rallied 28% in June.

5. In September DOW lost 31%, its worst month ever.

6. October and November markets rallied 36%.


1. “For bull and bear alike, 1932 was the most savage year in stock market history.”

2. Rails tripled within 8 weeks of the summer.

3. Worst days of the economy still were ahead, but the averages were about to enjoy an explosive ascent. 5 fold increases were common.


1. A wave of bank closings and holidays.

2. Markets closed on March 3rd, opened on March 15th, and fear was gone. Some “approved banks” were operating.

3. Everyone knew prices were cheap and there was a fear they would get no cheaper.

4. Prohibition was on the way out.

5. FDR mounted a deliberate inflation plan, seeking to raise commodity prices.

6. 2nd largest gain ever, first being 1915.


1. By the end of the year the economy turned and commodity prices were creeping higher.

2. Dow ended slightly up for the year. Volume was down 50% from 1933. Correction during 1934 peeled off 23% on the Dow.


1. Detroit drove the market back. Even with unemployment in high teens.

2. Late spring gain of industrial strength.

3. Confidence coming back in banking, restored by the FDIC.

4. Dividends were increasing.


1. Big employment gains, auto gains and confidence gains.

2. consensus was that depression was finished.


1. Depression days returned with a vengeance. Dow lost 33%.

2. August – November Dow lost 40%. Year end rally cut those losses.

3. Japanese bombers such a US gunboat when it was in Chinese waters.

4. The economic downturn was called the 2nd depression, but in 1938 it was downgraded to recession.

What can we learn?

Maybe we learn that stock market bottoms precede a better economy by many years. I think the market hit its lows in 1932, yet economy did not recover till at least 1934 to 1936, maybe later.

We learn that things can always get worse. We saw this from 1929 – 1932.