Trick or treat? Was 1929 crack similar to “2008-? Crisis”
Friday, October 30th, 2009Learning 1929 lessons
And there is no shortage of commentators who are using the occasion to scare investors with the prospect that the stock market may take as long to recover from the 2007-2009 financial meltdown as it did from the 1929 crash.
On the surface, of course, those commentators’ point appears very scary indeed.
It wasn’t until Nov. 23, 1954, that the Dow Jones Industrial Average /quotes/comstock/10w!i:dji/delayed (INDU 9,962, +199.74, +2.05%) closed above its 1929 high — a recovery period of some 25 years. If the recovery from the 2007-2009 bear market were to take the same length of time, the Dow wouldn’t again close above its all-time high until Dec. 28, 2032.
The truth, however, is that it took stocks far fewer than 25 years to recover. According to Wharton finance professor Jeremy Siegel, the inflation-adjusted, dividend-adjusted index of the U.S. stock market was just as high in late 1936 and early 1937 as it was at its pre-crash peak in 1929.
That was less than eight years later.
That may not be great news to investors who are hoping to recover their bear-market losses in just one or two years. If the recovery from last year’s bear market were to take just as long as it did 80 years ago, the stock market wouldn’t be back to all-time highs until around 2015.
Still, waiting 8 years is a whole lot better than waiting 25.
So don’t let the noting of the 1929 crash lead you to become needlessly scared.
Just as you can stop your child’s Halloween fear by taking off the masks, a careful reading of history can make that crash and its aftermath look a lot let scary.
– Mark Hulbert
