Many stories have been written about the the famous Stock Market Crash of 1929, but I am aware of none that have delved into the bull market beyond the last few months before the crash. Countless people have been fascinated with the crash and have made all sorts of false assumptions that the speculative fever was intensified by margins which are only 1O% . That statement is completely false and, in fact, many stocks were not available on margin at all. Others paint the picture that a vast portion of the population was involved, right down to shoe shine boys. Again, we will see that this was a gross exaggeration. One book, “The Day The Bubble Burst,” is an excellent accounting of the social impact of those trying times. The cast of characters is unsurpassed and provides a look into the private lives of some of the people who were the biggest players.
But from an analytical perspective, the atmosphere that surrounded the market at that time is a very important area to explore. Far too often, economists and market analysts assume that such catastrophes are freaks in the marketplace and that they will never happen again. Others try to inject the famous Kondratieff cycle into the stock market and proclaim that the end is near. Some have been calling for a devastating collapse ever since 1982 and each year they crawl out from under their rocks to pro-claim that this is the year that the market will collapse to 10 cents on the dollar as that infamous month of October approaches.
Other hard-money advocates beat their chests, warning that everyone must buy gold and claiming that this deflationary wave in the 1980s is only the beginning of a situation similar to that which took place in 1929. But they should go back in history and understand what took place. If they look at a simple chart they would see that the collapse from 381 to 40 points on the Dow Industrials took place in the span of three short years. Such disasters have always come without warning and the process has never dragged out over a period of four to six years. Normally the pain has always been swift and to the point and panics are just that, panics which take their toll in the course of one to three years.
It is a widely known fact that nearly 90%of money managers have been unable to beat the Dow or the S&P in performance. It is always easy for someone on the outside to look in and criticize a money manager for his performance. When it comes right down to it, most managers are damned if they do out-perform by critics who say they have been too aggressive. If they perform less than the Indexes their critics say that if they had just bought the Dow stocks they would have been ahead of the game.
Trading any market is difficult to say the very least. Judging someone’s performance on the surface tells little about his system or his analysis. For example, take two managers who both made money on the stock market rally between September 1985 and April 1986. One bought the market because he felt that the economy was going to heat up and he realizes that inflation brings with it growth for many industries. The other manager bought the market because he thought there was going to be a discount rate cut. Both may have made money, but the gains were based on two totally different fundamental principles.
The difference between the two managers may eventually show up only when the fundamental long-term ideas of one trader or the other prove to be wrong. Then one will continue to make money and the other will suddenly become a net loser. The loser will chase t h e mar ke t, ine vitab ly gett in g chopped up back and forth while the other will consistently do well if his long-term concepts remain in the proper perspective. Therefore, we find that trading managers come and go not merely for small private accounts, but for the big institutions as well. People have a tendency to judge managers on a short-term basis and many scrutinize each and every trade, when, in fact, it is the long-term that counts the most.
The short-term trading or analysis of the stock market has always been the worst. Sure, some analysts have done quite well calling the market for short-term moves, but eventually it turns out to be periodic and lacks consistency. The long-term is something that most people vacillate over, switching their opinions on a short-term basis from bullish to bearish. How can an investor achieve consistency, or at least make sure that if he misses a short-term move, he is not caught on the wrong side of Wall Street? If you want to know what the future holds, you need a map of the past to at least provide a guide as to what is or is not possible. Far too many people fail to look at the events of the past as a whole, but single out only an isolated period to support an unwarranted assumption to arrive at a fore-gone conclusion.
The Greatest Bull Market in History: Will it Happen Again? By Martin A. Armstrong pdf