I’ve been hearing a lot of talk lately about the Roaring 20’s and how they’re here now. I guess people are seeing a market near all-time records and are getting scared. Is 1929 right around the corner? Should you buy now? Sell?

Newspaper from 1929 Stock Market Crash

…and by passive I don’t mean lazy.

What a great question! You know that there’s no right or wrong answer here.

What’s my advice? Read this book (affiliate link) and then go do your favorite hobby.

The markets are an artificial construct, built by humans, run by humans, and misunderstood by humans. It’s rigged and will always be so. As I’ve pondered before, how do you ‘unrig’ the market and stack the odds in your favor?

Simple, read this book (affiliate link) and then go do your favorite hobby.

Seriously, go read that book. It changed everything for me and I’ve taken a more passive approach to investing, and by passive I don’t mean lazy.

I still keep my eye on the ball and I’m still listening to Mr. Market, I just do things differently so I can stack the odds more in my favor.

Dollar Cost Averaging

Want to stack the odds in your favor? The simplest thing to do is to dollar cost average across diverse asset groups. I recently read that the 1/N method of asset allocation outperforms all complex ones with low turnover and minimizing trading fees.

“there is no single model that consistently delivers a Sharpe ratio or a CEQ return that is higher than that of the 1/ N portfolio, which also has a very low turnover.”

The 1/N model is simple, count up how many assets you have (N) and then divide. If you have 10 stocks, then each stock shouldn’t make up more than 1/10 of your entire portfolio.

Diversify! Diversify! Diversify! And keep fees low.

So what about today and the Roaring 20’s? I believe that there’s so much cash from the Trump (and soon Biden) stimulus that the market is going to extend higher from here. I think a pullback is overdue, but Wall Street will start partying like it’s 1999 again.

What about a 1929 crash? Will that happen? I think most definitely, I just don’t know when. Main Street will see the stock market go higher and they’ll start to feel better, the economy will strengthen once Covid19 is under control and everyone, I mean everyone, will start to party.

After the 1929 Stock Market Crash

The good times will roll until the bill is due and this time, it’s going to be a big one.

Is it a possibility, yes. Probability? Yes, but I don’t know what that is right now. That’s my guess.

I still keep my eye on the ball and I’m still listening to Mr. Market…

1929 Market Crash Protection

I was searching for how to be defensive if, and if, a big 1929 stock market crash were to happen today. What stocks weathered the storm and why.

I still haven’t figured it all out but I keep seeing that dividend-producing stocks weathered the 1929 market crash. Sure they took a beating, but if you had cash on the sidelines back then you could’ve snapped up some quality names.

Coca-Cola traded at $2.66 for every $1.00 in book value, with a dividend yield of 7.79%. This represented a 57% drop, excluding dividends, from the 1929 peak.

AT&T traded at $0.64 for every $1.00 in book value, with a dividend yield of 10.34%. This represented an 82% drop, excluding dividends, from the 1929 peak.

Colgate-Palmolive traded at $0.44 for every $1.00 in book value, with no dividends distributed. This represented a 92% drop from the 1929 peak.

Gillette (now part of Procter & Gamble) traded at $0.85 for every $1.00 of book value with a dividend yield of 13.77%. This represented a 95% drop from the 1929 peak. via A Look at Some Major Stocks During the Bottom of the 1933 Stock Market Crash

Guess what? Those stocks are still trading today and they’re producing dividends! What if I was invested in them (I am long T) and watching them fall 80-90% from their peak? I’d probably shit my pants first of all but I’d know that they’d still generate dividends that will help me buy low - very low - and wait for a rebound.

That’s the thing with these rigged markets. People lose their grip on reality as prices go up, willing to buy higher and higher, and then get scared when the market sells off. It’s precisely when the market stabilizes lower that you should “Buy The Fucking Dip (BTFD)”. Of course, everyone will be burned and very shy to do so.

This is why saving and long-term investing works, you BTFD and ride it out with dividends. It just sucks if the market crash happens when you’re getting ready to retire!

End Notes

We didn’t even talk about the Stock Market Crash of 1933! That’s the one that caused the Great Depression and will be the subject of another rant post.