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Three Things You Didn't Know About The Crash Of 1929

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  • reynolds
    Senior Member
    • Oct 2018
    • 2010

    Three Things You Didn't Know About The Crash Of 1929


    Three Things You Didn’t Know About The Crash of 1929
    October 30th, 2019
    The US dollar has lost 94% of its value since 1929.

    The US stock market had peaked the previous month, on September 3, 1929, with the Dow Jones stock index reaching a record high of 381. But throughout September and October, nervous investors began pulling their money out of the market. And over a three-day period in late October (including Black Monday), the market lost more than 30% of its value. It would be prudent to look at three key insights from that historic crash, starting with:

    1) Stocks are more overvalued today than they were in 1929

    Back in 1929, the price/earnings ratio of the average company trading on the New York Stock Exchange was about 15. In other words, investors were willing to pay $15 per share for every $1 of the average company’s profit. Coca-Cola’s Price/Earnings ratio back in 1929 ranged between 15 and 18. Today it’s 30… meaning that investors today are willing to pay roughly twice as much for each dollar of Coke’s annual profit. Over the past eight years, Coca-Cola has lost nearly 40% of its equity, sales are down, and per-share earnings have fallen by 70%. The company is in far worse shape today than it was eight years ago. It’s not just Coca-Cola either; the Price/Earnings ratio of the typical company today is about 50% higher than historic averages.

    2) Stocks fell by nearly 90% in 1929… and it took decades to recover.

    From the peak in September 1929, stocks ultimately fell nearly 90% over the next three years. The crash wiped out DECADES of growth. And it took until November 1954 for the Dow to finally surpass its high from 1929. Japan’s stock market peaked in late 1989 with its Nikkei index reaching nearly 39,000. Even today, thirty years later, the Nikkei index is still 40% below its all-time high.

    3) Adjusted for inflation, stocks have returned just 1.7% per year since 1929.

    Businesses take time to grow and expand, and patient investors who understand this tend to do well. But when thinking about the long term, it’s imperative to consider the extraordinary effects of inflation. Every single year your money loses around 2% of its value. But over time those small bites of inflation fester into a major chunk of your investment gains. Consider that, even according to the federal government’s monkey math, the US dollar has lost 94% of its value since 1929. So even though the Dow is more than 70x higher than it was in mid-1929, when you consider the effects of inflation, stocks are only about 5x higher over the past 90 years. When adjusted for inflation, gold has averaged a 1.8% return since 1929 (slightly higher than stocks), and a 6.7% return since 1999– more than 3x as much as stocks. Read more ...



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