The Great Depression
That time when the stock market crashed -89.2%
Imagine your first job out of college. You know you are supposed to save and that investing in stocks is a good way to do that. So, you work hard throughout your career and invest diligently. After 35 years of all that investing and compounding you are ready to retire - except, your investment account looks terrible and you really have nothing to show for over three decades in the market. In fact, you did worse than if you had just put your money under the mattress instead of in stocks!
Well, for lucky graduates way back in 1897, that was basically their reality. An entire working career where the market had some ups and downs and a crazy roaring ‘20’s speculative bubble but between June 4, 1897 and July 8, 1932 the Dow Jones Industrial Average went from 40.52 to a whopping 41.22. Ouch!
Three things jump out to me about this chart:
The speculative bubble in the 1920’s was insane
The fact that the stock market crash during the Great Depression wiped out 35 years of progress on the index in just three years was insane
The amount of recessionary time during this period of history was insane
Overall, it was an insane time. It was so particularly crazy during 1929-1933 that it wasn’t just a recession, it wasn’t just a depression, no no, it was the Great Depression. Things were so bad they called it “Great.” Talk about a twisted sense of humor.
With the stock market going up about 400% in a decade, it’s easy to assume that was just a crazy speculative bubble and the market was bound to fall back down to where it was before. These things always seem obvious in hindsight - I mean just look at the chart! That ramp was for sure going to crash! Right?
I guess when the stock market goes up 400% in a bull run lasting 11 years everyone knows there is a bubble and stocks are going to fall. Oh…wait, but that wasn’t the roaring ‘20s. That was 2009 to 2020. Scary food for thought.
It will be hard to wipe out 35 years of gains this time around. That would put us around Dow 1,500! Or about a 97% loss. Imagine that.
Well, people in 1933 got to live that stock market nightmare. Let’s hope the 2020’s are more of the roaring kind!