Even The Great Depression Couldn't Keep Stocks Down
Let's play this week's favorite parlor game: Are we in another Great Depression?History may never repeat itself exactly, but you wouldn't know that from the spate of recent articles comparing our current economic plight to the worst economic contraction since the Plague. I confess to a grim fascination with the subject, which has had me brushing up on my U.S. history. It's fascinating reading, even if you don't have to get very far to recognize that the comparisons are pretty off base. There's no doubt the global economy is under tremendous stress with still-indiscernible consequences, but the Great Depression this is not.
This seems so obvious that I'm not going to dwell on the well-intended but seriously misguided economic policies that made the Great Depression so bad, and recent steps that should help ease the stresses that have developed this time. But for the sake of our parlor game, let's cast all that aside. Let's say we are in another Great Depression and that markets will be every bit as bad as they were then. What should investors do?
For stock investors, the headline for the Great Depression is usually that the S&P 500-stock index lost 86% of its value, falling from 31.86 on Sept. 16, 1929, to 4.40 on June 1, 1932. Obviously, it was a terrible time to be holding stocks.
The early years of the Great Depression were marked by deflation, or falling prices, a relatively rare occurrence during which bonds traditionally outperform other investment classes, since their interest payments buy an ever increasing number of goods and services. It's the opposite of inflation, when the value of fixed-interest payments is eroded. U.S. Treasury bonds also offer almost risk-free returns. For the same reason, even cash does well in a deflation.
So it seems obvious that if we are again in a Great Depression, the place to be is Treasury bonds and cash. Given the global flight to safety, the stampede into Treasurys, and even reports that people are stuffing their mattresses with cash, that's certainly how investors are behaving.
So let's test that hypothesis. It's important to recognize we're now nearly a full year into the current bear market. The S&P 500 has fallen about 40% from its peak, which is nearly half the decline of the Great Depression. Back then, the S&P 500 had declined by nearly the same amount by Sept. 26, 1930, almost exactly a year after the index's then all-time high. That's eerily similar to now, since the S&P 500 peaked about a year ago.
If you bought stocks at that point in 1930, you faced a further severe decline. Stocks had another 40% or so more to drop, but that's a much higher percentage of the price you just paid. Measured from 1930 to the low in 1932, the S&P 500 lost nearly three-quarters of its value. No one would've patted you on the back for having astute timing, even though you missed the entire first half of the collapse in stock prices.
But look what happened as the years passed: Based on data compiled from the Federal Reserve, $100 invested in stocks on Jan. 1, 1928, was worth $98.75 by the end of 1930. At the end of 1935, they were worth $110.18, a 12% gain. At the end of 1940, during the darkest days of World War II, they were worth $107.37, which was still a 9% gain. And if you held the stocks for 20 years, they were worth $355.60, a nearly 260% rise.
Cash, of course, appreciated little. Short-term Treasury bills rose 5% from the end of 1930 to the end of 1935, and were just a hair higher by the end of 1940. At the end of 1950, T-bills had gained 11%. Ten-year Treasury bonds fared better over five (22%) and 10 years (49%), but over the 20-year period they returned 81%, far shy of stocks' 260% climb.
Now let's continue with our assumption that things are as bad now as the Great Depression, meaning the S&P 500 has another three-quarters decline ahead of it. Let's say you bought stocks at the end of 1932, when things looked their bleakest. Five years later, stocks had gained 86%; in 10 years 120%; and in 20 years 926%. Comparable numbers for 10-year Treasurys are gains of 22%, 41% and 75%, respectively. In other words, stocks substantially outperformed bonds in each period. What does that mean for investors today? I'll leave you to play your own parlor game and draw your own conclusions.
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我們玩一個本週流行的猜謎遊戲：我們已陷入了另一次大蕭條嗎？
歷史或許不會一成不變 地重復﹐但從近期連篇累牘地將目前經濟困境同當年的大蕭條相提並論的文章中你不會瞭解這點。我承認對這一主題頗為著迷﹐它讓我重新溫習了一遍美國歷史。這 樣的閱讀令人痴迷﹐你甚至不用太過投入﹐就能認識到這種對比是相當缺乏根據的。無疑﹐全球經濟仍面臨巨大的壓力﹐存在難以預測的結果﹐但當年的大蕭條不會 重演。
這點看起來非常明顯﹐因此我不想詳述曾讓大蕭條越陷越深的出於好意但卻具有嚴重誤導性的經濟政策﹐以及最近採取的有助於緩解這次危 機壓力的措施。但為了我們遊戲的目的﹐讓我們放棄所有這些。讓我們說﹐我們已處於另一次大蕭條中﹐市場同大蕭條時的情況一樣糟糕。那麼投資者應該做些什麼 呢？
對股市投資者而言﹐有關大蕭條的頭條新聞通常是標準普爾500指數下跌了86%﹐從1929年9月16日的31.86點跌到了1932年6月1日時的4.40點。顯然﹐那時持有股票的結果是災難性的。
大 蕭條前幾年的主要標志是通貨緊縮﹐即價格下跌﹐這期間會出現比較少見的情況﹐即債券的表現通常會好於其它投資品種﹐因為債券的利息能購買更多數量的商品和 服務。通貨緊縮是通貨膨脹的反面。在通脹時﹐固定利率的收益都會被價格的上漲所侵蝕。美國國債也能帶來幾乎沒有風險的回報。出於同樣的原因﹐即使是現金在 通貨緊縮時也是不錯的選擇。
因此﹐如果我們再次陷入了大蕭條之中﹐安全之地應該是美國國債和現金﹐這點看來是顯而易見的。鑒於目前全球對風險的回避﹐買進美國國債﹐甚至有報導稱人們將現金塞進床墊﹐這些都顯然是投資者目前的行事方式。
如果你在1930年時買進股票﹐則仍將面臨慘重的下跌。雖然股 指的下跌點數仍是1929年時股指高點的40%﹐但股指的跌幅卻要高得多。從1930年到1932年股市跌至低點這段時間﹐標準普爾500指數的市值損失 了近四分之三。沒有人會表揚你在時機選擇上的敏銳﹐即使你錯過了股價崩盤的整個上半輪。
但看看隨著時間的推移所發生的情況吧：根據美國聯 邦儲備委員會(Federal Reserve)編制的數據﹐1928年1月1日投資於股票的100美元到1930年底時還值98.75美元。到1935年底時﹐這筆錢值110.18美 元﹐增值了12%。在1940年底二戰最黑暗的時期﹐這筆投資的價值是107.37美元﹐仍增長了9%。如果你持股20年﹐它們的價值將達到355.60 美元﹐增值近260%。
當然﹐現金幾乎沒有升值。從1930年底到1935年底﹐短期美國國債增值了5%﹐到1940年底時也僅上漲了很 少一點。1950年底﹐短期美國國債增長了11%。10年期美國國債的表現更好一些﹐在5年和10年期限里分別增值了22%和49%﹐但其20年的回報率 為81%﹐遠低於股票260%的漲幅。
現在讓我們繼續現在同大蕭條時期一樣糟糕的假設﹐這意味著標準普爾500指數今後還要再下跌四分之 三。比如說你在1932年底買進了股票﹐當時正是股市最黑暗的時刻。5年後﹐股市上漲了86%﹔10年後上漲了120%﹔20年中則上漲了926%。而同 期10年期美國國債分別上漲了22%、41%和75%。換言之﹐股票的表現在每一個時間段都大大好於債券。這對目前的投資者意味著什麼？希望你自己做完這 場室內遊戲﹐自行得出結論。
James B. Stewart
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