Back to the Future

Back to the Future

What We Learned Yesterday We Can Use Todayfrom_our_columnists

By Kara Stefan

kara_stefanIn 1929, “Singing in the Rain” was first released, starring Gene Kelly and Debbie Reynolds. Ernest Hemingway published A Farewell To Arms, radio was the brand new technology of the day, and Dr. Martin Luther King Jr. was born.

It was also the year of Black Thursday, the stock market crash that launched the country into the Great Depression that was to last well over a decade.

Notwithstanding that our current popular culture veers more towards “Mission Impossible: 2”, John Grisham novels, and the Internet, and our heroes are movie stars and professional athletes–there are actually a lot of parallels between then and now.

Take, for instance, this quote from a New York Times article, published 6 months before the stock market crashed: “Playing the stock market has become a major American pastime.”

Or this one, published just a few days into the aftermath, “To most of those who have been in the market, it is all the more awe-inspiring because their financial history is limited to bull markets.” Since half of America didn’t even start investing until the bull run of the 1990s, it’s safe to say that statement is destined to ring true in the wake of another crash.

If that’s not eerie enough, consider these economic similarities just prior to 1929’s Black Thursday:

  • The market boom of the “Roaring Twenties” resembled that of the bull market of the 90s.
  • Investors leveraged themselves heavily by buying stocks on margin.
  • Stocks were wildly overvalued.
  • The economy was spinning around the new technology (radio).

Forewarned is Forearmed
The stock market crash of 1929 came on October 24. The crash in 1987 landed on October 19. Not to get anybody worried or anything, but what’s up with the month of October?

It would appear that if we’re due for a stock market crash this year, chances favor it to happen in October. The good news is that October is still several months away, and we have time to prepare. The following are a few tips to help your portfolio in any type of market environment, whether it crashes or just continues merrily on its way:

  • Pay off as much debt as possible now, before interest rates rise any higher.
  • If you’re holding any stocks–probably in the high tech sector–that are still way overvalued, now might be a good time to cash in your market gains.
  • Reinvest your gains across various asset classes and market sectors to ensure you’re appropriately diversified.
  • Put together an emergency fund if you don’t currently have one–experts suggest from 3-6 months worth of cash.
  • Look for value stocks–good companies selling at low prices because they’ve had little market appeal in recent years.

Our Grandmothers Survived; So Shall We
As frightening as it might be to manage your own investment portfolio in this day and age, there were plenty of women doing the very same thing back in the 1920s. And how did these women react after the crash of 1929?

The New York Times reported that days after the crash, 4 elderly women were “making the rounds of the (Wall Street) offices, apparently bent on turning catastrophe into a social affair.” One woman announced that she had lost $10,000. “She seemed proud that she had lost it and went around for some time telling her friends,” the reporter wrote. “She wore 4 rings on one hand and smoked a succession of gold-tipped cigarettes from a jewel-studded gold case.”It must be nice to be nonchalant about one’s wealth, or rather loss of wealth. However, the scenario does go to show that women–albeit wealthy and widowed–took a very active role in managing their money. Enough to show up at their broker’s offices for a requisite tongue-lashing–whether it was deserved or not.

The feisty women of yesteryear provide us with fine role models. Apparently, during a period when the New York Stock Exchange lost upwards of $8 to $9 billion dollars, they didn’t lose their fighting spirit in the face of financial ruin.