As a stock market historian, the single best benchmark for all market analysis is the years from 1929 to 1954. This is the period when the Dow Jones Industrial Average peaked at 381.10 in 1929 and fell to the astoundingly low level of 41.20, a decrease of 89.19% in a period less than three years. 1954 was the year when the Dow Jones Industrial Average finally went above the 381.10 level and never looked back.
In my article titled "Dow Jones' Decline Largely Impacted by Index Changes", I explained that the Industrial Average probably would have never gone as low as it did nor would it have remained below the 1929 peak for as long as it did had it not been for the frequent changes to the index which resembled a trader’s mentality rather than a “long-term” investor. However, the market actually recovered much faster than most people think. Additionally, if we were to experience a similar 89% decline in the stock market, we probably can expect that the subsequent recovery would come faster than we think.
Below are a list of 28 companies that reflect their respective high price of 1929 and the low price of 1932. The percentage decline in some cases mirrors what happen to the Dow Jones Industrial Average with all of the changes to the index during the same timeframe.
|Company||Old Symbol||1929 high||1932 low||% decline||Year Even|
|Babcock & Wilcox||BAW||$22.75||$3.25||85.71%||1937|
|Food Machinery & Chemical||FDM||$11.63||$0.38||96.73%||1937|
|Standard Oil of California||SD||$33.75||$6.25||81.48%||1950|
|Standard Oil of New Jersey||J||$37.25||$9.00||75.84%||1947|
|Union Carbide and Carbon||UK||$46.63||$5.13||89.00%||1950|
|Western Auto Supply||WST||$13.50||$0.88||93.48%||1937|
|Wheeling & Lake Erie Railway||$35.00||$0.13||99.63%||1951|
|Wrigley (Wm.) Jr.||WWY||$80.88||$25.25||68.78%||1935|
As we can see, many companies were dramatically impacted by the decline from 1929 to 1932. However, what is most surprising is the time it took to achieve the break-even point. Exactly half of the companies on the list managed to break even after only eight years, in 1937. This is less than the time it took for our current market to get back to the 2000 break-even point. One of the more fantastic recoveries that I’ve seen is the price of Dow Chemical, which recovered all of its losses by 1933. This required a 233% gain in less than a year after hitting bottom.
Taken as a group (similar to a stock index) it took an average of 12 years for the companies in the index to break even. This is in stark contrast to the Dow Industrials finally closing above the 1929 peak in 1954, some 25 years later. This also splashes considerable water on the theory that it was WWII that finally got the stock market (economy) out of the “Great” Depression. The breakeven of the market based on my calculations explains why 1941-1943 was the beginning of a new bull market according to Dow Theory depending on the Dow Theorist that you want to believe. That bull market indication was in force until 1966.
If this data seems suspect, then it probably is. After all, I selected the companies that fit my model. Critics could also claim that my retrospective analysis works great in theory but doesn’t hold up to the real world. Others could say that changes to the Industrial Average was necessary and meant that the prior companies didn’t reflect the qualitative standards of a premier index of the Dow. However, a careful analysis of Poor’s High and Low Prices for the periods from 1924 to 1940 would show that an alarmingly large number of companies, both high and low quality, achieved a breakeven in their respective prices long before the year 1954.
- Dow-Jones Decline Largely Impacted by Index Changes
- The numbers are skewed on the losses from 1929
- Quality (and not so quality) companies recovered long before the Dow in 1954
- WWII probably didn’t save the stock market
- Poor’s High and Low Prices 1924-45, Poor’s Publishing. (New York).
- Schaefer, George E., How I Helped More Than 10,000 Investors to Profit in Stocks, Prentice-Hall, (New Jersey, 1960), pp. 53.
- Standard and Poor’s Selecting Stocks to Buy for Profit, Henry Holt and Company, (New York, 1956).
- Edwards, Robert D. and Magee, John, Technical Analysis of Stock Trends, Boston, 1992), pp. 61.
- Schannep, Jack, Dow Theory for the 21st Century, John Wiley & Sons, (Boston, 2008), pp. 27-28.
- Sperandeo, Victor, Principles of Professional Speculation, John Wiley & Sons, (New York, 1997), pp. 106.