Little Bits of History

July 8

Posted in History by patriciahysell on July 8, 2017

1932: The Dow Jones Industrial Average (DJIA) reaches its lowest point during the Great Depression. The Dow was created by the Wall Street Journal editor Charles Dow and was first calculated in 1896. Dow and his business partner, Edward Jones, brought together an index showing how 30 large publicly owned companies in the US were faring in the stock market. The average is price weighted to compensate for stock splits and other adjustments. It isn’t a true average of the thirty prices of the stocks, but is the aggregate of the thirty stocks divided by a divisor based on these compensations. This has given a more consistent value for the index. It was devised to give an indicator of the performance of the industrial sector of the market.

The thirty industries have changed 51 times in the years since The Dow was invented and General Electric has had the longest continuous presence on the list from 1907 to the present day, but it was also included in the original list, fell off, and was added back. The most recent addition came in 2015 when Apple was added. Microsoft has been part of The Dow since 1999. The Great Depression began in 1929 and most economists believe the precipitating factor was the collapse of the US Stock Market on October 29, a day known as Black Tuesday. A minority of economists believe the collapse was a symptom and not the cause of the largest worldwide depression in the 20th century.

The Roaring Twenties, the years after World War I ended, was a time of excess and wealth. Optimism gave a look into a brighter future. Many rural people abandoned their farms and moved to the cities to find a more prosperous life. The families who remained on the farms were faced with financial woes while their city cousins were wildly speculating in the markets. In the spring of 1929 there were already warnings of an impending collapse and the market and The Dow were both fluctuating. As money tightened, the economy grew tighter as well. And then the collapse came and domino effects spread the crisis around the world.

On this day, The Dow reached its lowest point, but rallied slightly before closing. At its lowest, The Dow was 40.56 and the day closed at 41.22. This was a 90% drop in the value of the index from the high point of 1929. There was panic selling due to a drop in consumption which led to lower productions and more unemployment. While the markets and economies would eventually recover and slowly inch upwards, it took nearly a decade to do so. President Roosevelt came to power during this time and his policies, along with the anticipation of the US entering World War II finally led to an economic recovery and The Dow slowly followed in its wake. Today, The Dow is over 20,000 and continues to fluctuate as do the markets worldwide.

Market forces and capitalism by themselves aren’t sufficient to ensure the common good and to limit the concentration of wealth at levels that are compatible with democratic ideals. – Thomas Piketty

Lost wealth may be replaced by industry, lost knowledge by study, lost health by temperance or medicine, but lost time is gone forever. – Samuel Smiles

Rule No.1: Never lose money. Rule No.2: Never forget rule No.1. – Warren Buffett

A business that makes nothing but money is a poor business. – Henry Ford

Black Tuesday

Posted in History by patriciahysell on October 29, 2015
Crowds outside NYSE

Crowds outside NYSE

October 29, 1929: Wall Street trading leads to the day known as Black Tuesday. The crash began on October 24 and was the most devastating stock market crash in US history. It was also the beginning of the Great Depression affecting all Western industrialized countries. After World War I, the country was rejoicing in wealth, prosperity, and a new sense of freedom and the Roaring Twenties were a symbol of the newfound optimism. Many rural Americans decided to become urban Americans and the move to the cities created a labor pool which fueled growth. But with so many farmhands moving to the cities, the American farmer was left in crisis.

There was much talk about the excessive speculation in the stock market and on March 25, 1929 there was a mini crash after the Federal Reserve pointed out the dangers. Speculation in this sense means investing in risky transactions in the hopes of making large sums of money due to market fluctuations. On March 27, Charles Mitchell of National City Bank announced they would provide $25 million to stop the stock market’s slide. While it worked, at least temporarily, the US economy was in trouble with steel production down, housing markets in decline, and car sales slowing. Because easy credit had been available, many Americans were drowning in debt. Even with all these indicators, the market recovered and continued to climb throughout the summer with an increase of total value of 20% between June and September.

On September 20, the London Stock Exchange crashed and several top investors were jailed for fraud and forgery. In America, this made investors pause and in the days leading to the ultimate crash, the markets were extremely volatile. Adding to the fear was the Smoot-Hawley Tariff Act being debated in Congress which was to raise tariffs to a high not seen for over 100 years.  On Black Thursday, October 24, the market lost 11% of its value on opening due to very heavy trading. The tickers around the country couldn’t keep up with the rapidly dropping prices and so stocks were sold without knowing what the actual value was. Panic broke out on the trading floor. Richard Whitney, at the request of several bankers, went to the floor and began buying large blocks of blue chip stock in the hopes of stemming the panic. It worked and the market was only down 6.38 points for the day.

The rally continued on Friday and the markets were then open for half days on Saturdays and that too, saw the markets rise. But the weekend papers had stories about what was happening on the floor of Wall Street and on Monday many investors with margin calls decided to get out of the market altogether. The market dropped 13% on Monday. On this day, with panic selling at a fever pitch and no buyers to pick up even the inexpensive stocks, the market dropped another 12%. While a few financial giants attempted to stem the tide, the public lost confidence in the stock market and the value of the markets were down $30 billion dollars over the two days.

One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute. – William Feather

The difference between playing the stock market and the horses is that one of the horses must win. – Joey Adams

If stock market experts were so expert, they would be buying stock, not selling advice. – Norman Ralph Augustine

You get recessions, you have stock market declines. If you don’t understand that’s going to happen, then you’re not ready, you won’t do well in the markets. – Peter Lynch

Also on this day: Ali, the Greatest – In 1960, Cassius Clay, later to be known as Muhammad Ali, had his first professional fight.
Seeing Red – In 1863, the International Red Cross got its start.
You’re in the Army Now – In 1940, the first peacetime draft in the US was instituted.
Raleigh – In 1618, Sir Walter Raleigh was executed.
Serial Killer – In 1901, Jane Toppan was arrested.