This. My Grandfather was a Bell Hop in an apartment building. Not a margin investor, not rich, just some industrial stock in a good company, that was still growing and doing well 40 years later – by which time it was worth more than he paid for it.
In #19, the very post before yours, I show that the apparent price restoration in 1954 does not account for inflation.
Those stats do NOT account for dividend reinvestment. I’d like to factor in the dividends, but Google didn’t show them to me.
As I recall, nobody went into the details of what sort of fly-by-night scheme her money had been placed with. And since she’d already been working there since somewhere near the turn of the century, she’d have been retiring much earlier than 1955. For the purposes of the plot, “naive saver ruined by trusting a plausible but equally naive posho” is a fairly time-honoured dramatic trope.
I think a mistake a lot of people make is thinking that the stock market that existed before the crash was in a normal state and needed to recover to that level. It was actually in a bubble in which stock prices were unrealistically high.
Nobody asks if somebody should have held on to their tulips after the 1637 crash and waited until they recovered their value.
Nonsense. From 1932 to 1955, the US stock market returned 9.7% per year after adjusting for inflation and dividend reinvestment.
Yes, I was trying to reconcile the claim I’ve heard for years with the data you presented…
…and I’m wondering if dividend reinvestment could be the key to this.
The plot point was that she had asked her employer, Major James, to invest it for her, and most of it was her legacy left her by her fiance.
The family (quite rightly) excoriate Major James for having anything to do with touching servants’ money.
Your link tracks the S&P 500, and the analysis in this thread has been tracking the Dow.
More important difference: the crash occurred in late 1929, so the relevant starting point would be 1929, not 1932, by which time it was already down.
When I input 1929 and 1954, I get a more modest 4.2% annualized return with dividends reinvested (-1.5% without). More relevant to the OP’s question, I get a total return of 182% (with dividends reinvested).
So it appears to be saying the S&P did indeed recover (and then some) between 1929 and 1954. All the above computations were with inflation accounted for.
A better example of a long-term bear market is the 17 year period ending in 1983. From January 1966 to January 1983 the S&P 500 returned -0.01% annualized after adjusting for inflation.
How does a statement beginning “From the 1932 low …” refute a statement beginning “From the 1929 high …” ?
ETA: I think a 3.3% average dividend rate is what would be needed to make up for inflation over that 25-year period.
Even if you look at returns from October 1929 to January 1955 you’d still have an annualized return of over 5% after adjusting for inflation. So your claim “In that sense the stock market was still down over 50% even in 1955” clearly is not correct.
I have a question. Would casual investors like Rose have bought shares in index-linked diversified funds, or would they have just been buying shares in individual companies? If the latter, my assumption is that many of those companies would have just gone bankrupt and wound up, so there would not be any ongoing investment that could recover in the ensuing years and decades. Is that right?
The high was in September '29, not October. Can you link to the inflation and dividend rates your source uses?
The calculator I linked to above uses data aggregated from Robert Shiller:
Index funds did not exist until 1975. She could have invested in a mutual fund.
Okay, but how likely was it? What percentage of casual investors were buying shares in mutual funds back then?
To pick an individual stock, take Radio Corporation of America (RCA), the hot tech stock of the late 1920s (and especially 1929). In the few years before the crash it went from $11 a share to $549 (near its peak it split 5:1), then collapsed to $10 a share by 1931.
Supposedly it didn’t recover to its 1929 peak until the mid-1960s. That’s a long time to wait.