When DID the stock market recover from 1929?

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nisiprius
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Re: When DID the stock market recover from 1929?

Post by nisiprius »

tadamsmar wrote: Tue Nov 05, 2019 9:54 am What if a Boglehead and his nest egg instantly poofed into existence (like the sperm whale in Hitchhiker's Guide to the Galaxy) at the top in 1929 ready to retire?

Is that supposed to be a realistic scenario?
No, it isn't. Your point is that statistics based on buying at a top are not much more than trivia items, and I agree.

But since people do write articles and make talking points based on "how long it took the stock market to recover" it's worth asking what the right answer is. The result of that exploration for me has been simply to underline how arbitrary it all is, without a Guinness records team to make a final judgement.

The most serious issue is that I constantly see advice that is predicated on things like "the average length of a bear market." If you are seriously planning "a cash bucket to ride out a bear market," it really matters whether the longest bear market was 7 years or 15. And the average is affected by whether you are averaging in two sevens or one fifteen.
A real Boglehead would have been beavering away for decades to build an adequate nest egg. He would have used realistic projections for stock market growth...
No, he wouldn't have, because people didn't invest that way in those days.

I would say that the idea of saving for retirement using stocks, and systematic withdrawals, did not begin until around the 1950s. You could date it as dating from the formation of CREF (in TIAA-CREF) in 1952. Before that, it was taken for granted by pension managers that pensions must be invested entirely in bonds (indeed, it might not have been legal to do otherwise; not sure when that changed).

The idea of stocks as prudent long-term investments had been bruited about. Edgar Lawrence Smith published Common Stocks as Long-term Investments in 1924. John Jakob Raskob presented something like a modern understanding in 1929 in a magazine article, "Everybody Ought to be Rich:" make regular purchases $15 a month in "good common stocks" and you will be financially independent in twenty years. He said. The numbers don't work unless you assume that you can pick "good common stocks" that are twice as good as the market average.

But Raskob might not even have known that, because what might be called "long-term stock statistics as we know them" didn't exist until the 1937 publication of Common-Stock Indexes, 1871-1937 by the Cowles Commission. And even that was just year-by-year data. Long-term averages weren't really well-known until Merrill Lynch sponsored the creation of the Center for Research in Securities Prices, in order to get data to back an ad they wanted to run. The data analysis was published in 1964.

But even more important than that is a reading of Benjamin Roth's The Great Depression: A Diary. During the Depression, Roth, a young lawyer, was constantly lamenting the fact that he just didn't have the money to snap up the bargains in stocks and real estate that he saw all around them.

Paper studies of how well you'd have done if you'd "just" carried out Raskob's plan of investing $15 every month (equivalent to $225/month in 2019 dollars) ignore the fact that even a young lawyer--let alone a salaried worker--had little chance of being able to do it.

So your theoretical 1929 Boglehead didn't have those "realistic projections" for stock market growth (Raskob's were double what was realistic), and couldn't have been "beavering away" saving because times were tough--even for what Roth calls "professional men"--and job income was insecure.
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Re: When DID the stock market recover from 1929?

Post by JBeck »

nisiprius wrote: Thu Nov 07, 2019 6:52 am No, he wouldn't have, because people didn't invest that way in those days
While reading The Great Depression A Diary by Benjamin Roth I was surprised to find out that everyone essentially borrowed to invest, many times taking out second mortgages, etc.
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Re: When DID the stock market recover from 1929?

Post by tadamsmar »

nisiprius wrote: Thu Nov 07, 2019 6:52 am
tadamsmar wrote: Tue Nov 05, 2019 9:54 am What if a Boglehead and his nest egg instantly poofed into existence (like the sperm whale in Hitchhiker's Guide to the Galaxy) at the top in 1929 ready to retire?

Is that supposed to be a realistic scenario?
No, it isn't. Your point is that statistics based on buying at a top are not much more than trivia items, and I agree.

But since people do write articles and make talking points based on "how long it took the stock market to recover" it's worth asking what the right answer is. The result of that exploration for me has been simply to underline how arbitrary it all is, without a Guinness records team to make a final judgement.

The most serious issue is that I constantly see advice that is predicated on things like "the average length of a bear market." If you are seriously planning "a cash bucket to ride out a bear market," it really matters whether the longest bear market was 7 years or 15. And the average is affected by whether you are averaging in two sevens or one fifteen.
A real Boglehead would have been beavering away for decades to build an adequate nest egg. He would have used realistic projections for stock market growth...
No, he wouldn't have, because people didn't invest that way in those days.

I would say that the idea of saving for retirement using stocks, and systematic withdrawals, did not begin until around the 1950s. You could date it as dating from the formation of CREF (in TIAA-CREF) in 1952. Before that, it was taken for granted by pension managers that pensions must be invested entirely in bonds (indeed, it might not have been legal to do otherwise; not sure when that changed).

The idea of stocks as prudent long-term investments had been bruited about. Edgar Lawrence Smith published Common Stocks as Long-term Investments in 1924. John Jakob Raskob presented something like a modern understanding in 1929 in a magazine article, "Everybody Ought to be Rich:" make regular purchases $15 a month in "good common stocks" and you will be financially independent in twenty years. He said. The numbers don't work unless you assume that you can pick "good common stocks" that are twice as good as the market average.

But Raskob might not even have known that, because what might be called "long-term stock statistics as we know them" didn't exist until the 1937 publication of Common-Stock Indexes, 1871-1937 by the Cowles Commission. And even that was just year-by-year data. Long-term averages weren't really well-known until Merrill Lynch sponsored the creation of the Center for Research in Securities Prices, in order to get data to back an ad they wanted to run. The data analysis was published in 1964.

But even more important than that is a reading of Benjamin Roth's The Great Depression: A Diary. During the Depression, Roth, a young lawyer, was constantly lamenting the fact that he just didn't have the money to snap up the bargains in stocks and real estate that he saw all around them.

Paper studies of how well you'd have done if you'd "just" carried out Raskob's plan of investing $15 every month (equivalent to $225/month in 2019 dollars) ignore the fact that even a young lawyer--let alone a salaried worker--had little chance of being able to do it.

So your theoretical 1929 Boglehead didn't have those "realistic projections" for stock market growth (Raskob's were double what was realistic), and couldn't have been "beavering away" saving because times were tough--even for what Roth calls "professional men"--and job income was insecure.
Those people who were, in fact, investing in the 1920s certainly had the ability to invest the way Raskob suggested, and there must have been a lot of investors. It was not infeasible for those crowds of investors, it was a matter of choice. The Wellington Fund started in 1929, so the idea of balanced investing was conceived before that and seen as an investment vehicle worth creating. Balanced stock/bond investing was not merely an idea, it was implemented. Wellington was the 5th mutual fund created. It constituted at least 20% of all mutual funds. In percentage terms, there were perhaps more balanced funds in 1929 than there are now. The idea that everyone was a crazy hocked-up investor is a good story, but apparently not the whole story. When authors write about the 2008 crash, how many include a chapter, or even a paragraph, or even a sentence, about us Boglehead?

Stock markets had been around for over 300 years in 1929. Time has added about 30% to that, but you read your words one would think time added 99.9%. Boom and bust cycles had been evident for hundreds of years by 1929. I don't then the notion of using base-rates was a secret from the entire human race in 1929. And all our data is not all that good at removing the variance in the base rates because estimating variances is a data hog. There was more than enough market data for that guy in the picture to your right to test the efficient market hypothesis in 1900.

Anyway, the question raised in your OP is compelling precisely because of its forward-looking relevance. I am pointing out a flaw or bias that should be considered in terms of its forward-looking relevance. The same issue arises with the modern Trinity Study and the like that are certainly meant to have forward-looking relevance.

A Boglehead planning to retire in 10 years at a 4% withdrawal can easily end up needing only a 3% withdrawal rate after a bull market like that of the 1920s. So, as a practical matter, a crash at that point is not as bad in practice as the Trinity-style numbers imply. Depends on the nature of returns, more boom-and-bust or more random? And depends on how a Boglehead reacts to an unexpected run-up in one's nest egg during a bull market.
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Re: When DID the stock market recover from 1929?

Post by okwriter »

AlohaJoe wrote: Mon Nov 04, 2019 1:01 am For someone with $1m in a 50/50 portfolio on October 1929 it means that their portfolio doubled in past 3 years and tripled past 7 years. In just the previous 12-months it had gone up 30%, from $770,000 to $1,000,000.
These numbers seem similar to today’s market. VTSAX currently has a 1-year return of 66%, and a 50/50 portfolio would’ve been up 30%. I’d be curious to know if this has ever happened before.
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Re: When DID the stock market recover from 1929?

Post by mr_brightside »

Twinsfan10 wrote: Mon Nov 04, 2019 7:47 am
Probably the biggest effect was that a lot of their generation (and my parents generation) never invested in stocks. When my parents passed away (about 15 years ago) all of their IRA's were invested in Bank CD's. I guess after living through times like that they never trusted the market again.
definitely this.

plus now we have much better information flow, accounting standards / transparency, order processing, etc. not to mention 'safety nets'...

certainly not 'perfect', but vastly improved

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Re: When DID the stock market recover from 1929?

Post by CyclingDuo »

okwriter wrote: Mon Apr 26, 2021 5:38 am
AlohaJoe wrote: Mon Nov 04, 2019 1:01 am For someone with $1m in a 50/50 portfolio on October 1929 it means that their portfolio doubled in past 3 years and tripled past 7 years. In just the previous 12-months it had gone up 30%, from $770,000 to $1,000,000.
These numbers seem similar to today’s market. VTSAX currently has a 1-year return of 66%, and a 50/50 portfolio would’ve been up 30%. I’d be curious to know if this has ever happened before.
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Re: When DID the stock market recover from 1929?

Post by firebirdparts »

gwe67 wrote: Sun Nov 03, 2019 8:20 pm Your analysis might be relevant for those who invested at the peak of the market, but there was a large increase in the stock market prior to 1929. Most investors would likely have been invested prior to the crash. Their recovery to initial position would have been quicker.
This is the key right here. Emotionally, it feels pretty bad, but in my case I would never have had the money to lose unless I invested a long time before the crash.
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Re: When DID the stock market recover from 1929?

Post by okwriter »

CyclingDuo wrote: Mon Apr 26, 2021 7:17 am
okwriter wrote: Mon Apr 26, 2021 5:38 am
AlohaJoe wrote: Mon Nov 04, 2019 1:01 am For someone with $1m in a 50/50 portfolio on October 1929 it means that their portfolio doubled in past 3 years and tripled past 7 years. In just the previous 12-months it had gone up 30%, from $770,000 to $1,000,000.
These numbers seem similar to today’s market. VTSAX currently has a 1-year return of 66%, and a 50/50 portfolio would’ve been up 30%. I’d be curious to know if this has ever happened before.
Yes. You really should be following along...

https://www.ccmmarketmodel.com/short-ta ... te-an-exit
Thanks for the video link. He makes a very optimistic case with the 1983 and 2010 comparisons, but I’m a bit disappointed he limited it to post-1950 and missed the scenario discussed in this thread.

Overall the historical comparison seems to portend either doom or a rosy outlook, so it’s not really conclusive.
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Re: When DID the stock market recover from 1929?

Post by CyclingDuo »

okwriter wrote: Mon Apr 26, 2021 5:09 pm
CyclingDuo wrote: Mon Apr 26, 2021 7:17 am
okwriter wrote: Mon Apr 26, 2021 5:38 am
These numbers seem similar to today’s market. VTSAX currently has a 1-year return of 66%, and a 50/50 portfolio would’ve been up 30%. I’d be curious to know if this has ever happened before.
Yes. You really should be following along...

https://www.ccmmarketmodel.com/short-ta ... te-an-exit
Thanks for the video link. He makes a very optimistic case with the 1983 and 2010 comparisons, but I’m a bit disappointed he limited it to post-1950 and missed the scenario discussed in this thread.
I was addressing your question if a rise of 66% in one year (underlined and bolded above) has ever occurred before, so I pointed you to his latest video that shows the rise in 1982 and 2009 off the lows since they were very similar percentage wise to what we just went through from March 23, 2000 to today. It was only his latest Friday video as he does one on every Friday and has covered the 1929 period in prior videos.

Ed Yardeni covers all the time periods as well...

https://www.yardeni.com/pub/stmktbullbearmkt.pdf
https://www.yardeni.com/pub/sp500corrbear.pdf

CyclingDuo
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Re: When DID the stock market recover from 1929?

Post by denovo »

neurosphere wrote: Sun Nov 03, 2019 5:03 pm
sperry8 wrote: Sun Nov 03, 2019 4:56 pm You may have included it but be sure to include dividend reinvestments. When you do the recovery happens much faster.
Curious, were there fees/friction on dividend reinvestments at that time? What were commissions on common stock at that time? Did that apply to dividends? I can only assume that investors received a check in the mail, and if they chose to reinvest that, there was another commission? I assume so. Just a guess, that I'm sure Google will answer for me if I chose to ask her.
This is all very hypothetical/academic as the commissions on stocks were very high (relatively speaking) and there were no index funds at the time, so I don't know how many people invested whose individual portfolio approximated the US Market Index.
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Re: When DID the stock market recover from 1929?

Post by JBTX »

stocknoob4111 wrote: Sun Nov 03, 2019 4:49 pm It isn't an accurate calculation because that period was hugely deflationary, so you need to adjust for deflation to get an accurate end result. When that is done the recovery is much much faster.

Some good insight into this:
Article: New Study: Stocks Only Took 5 Years To Recover After 1929

https://www.businessinsider.com/henry-b ... 929-2009-4

That's one way to look at it.

However, compared to the alternative to simply holding currency, which is a standard baseline for comparison, the deflation doesn't matter.
okwriter
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Re: When DID the stock market recover from 1929?

Post by okwriter »

CyclingDuo wrote: Mon Apr 26, 2021 5:55 pm I was addressing your question if a rise of 66% in one year (underlined and bolded above) has ever occurred before, so I pointed you to his latest video that shows the rise in 1982 and 2009 off the lows since they were very similar percentage wise to what we just went through from March 23, 2000 to today. It was only his latest Friday video as he does one on every Friday and has covered the 1929 period in prior videos.

Ed Yardeni covers all the time periods as well...

https://www.yardeni.com/pub/stmktbullbearmkt.pdf
https://www.yardeni.com/pub/sp500corrbear.pdf

CyclingDuo
Thanks. Didn't mean to sound dismissive - the 1982-83 and 2009-10 data were indeed exactly what I was looking for. My comment was more about the conclusions in that video being too optimistic. Will look for his take on 1929.
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Re: When DID the stock market recover from 1929?

Post by Wrench »

Kenkat wrote: Sun Nov 03, 2019 9:25 pm
sambb wrote: Sun Nov 03, 2019 9:16 pm In great depression likely had to cash out to afford to eat, etc. Not relevant to current times.
And most average people did not own stocks - they just lost their jobs when the economy crashed.
According to this site:
https://www.shmoop.com/1920s/statistics.html
less than 1% of the population owned stock in 1929. Even the more well-to-do generally held their wealth in small family owned businesses. Many of those were devastated by the depression as I can attest to from my own family history. Wage earners almost certainly did not hold any stock. So comparisons of "portfolio values" and "withdrawal rates" are meaningless. It may be an interesting academic exercise to look at stock prices from that period but I doubt it has much relevance to today.

Wrench
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