Reading time: 4 – 6 minutes
Over the years, I’ve read quite a number of books on investment.
Not all are worth the effort.
Reading the glyphs that predict future markets is a fool's errand that tempts us all.
Among those that I consider valuable, I would cite Graham & Dodd’s “Security Analysis”, “Fooled by Randomness” by Nassim Nicholas Taleb, Wu and Zakon’s “Elements of Investments”, and “The Great Depression: A Diary” by Benjamin Roth.
A Crisis from Within
Benjamin Roth’s Diary of the Great Depression is a remarkable book for it shows clearly what a long, dragged-out crisis looks and feels like, in real time, as viewed through the eyes of an intelligent, prudent observer with an interest in securities markets.
Benjamin Roth was a lawyer in Youngstown, Ohio during the Great Depression.
He was not wealthy or a particularly successful investor. Instead, he was an ordinary, intelligent person trying to make sense out of the national economy during the Great Depression of the 1930s, by reading the newspapers and talking with clients.
Premature declarations of recovery
Here is the entry in Roth’s diary on July 30, 1931:
Magazines and newspapers are full of articles telling people to buy stocks, real estate, etc. at present bargain prices. They say that times are sure to get better and that many big fortunes have been built this way. The trouble is that nobody has any money. On account of numerous bank failures, the few people who have money are afraid to spend it and are buying government securities.
A note to this entry indicates that on May 16, 1932, stock prices were 1/3 of what they were in 1931.
People who read this book in the hope that they will find some magical formula for investment success will be disappointed.
Instead, the lesson that this book teaches is that for an investor passing through an economic crisis, the future is totally opaque and that almost all public pontifications by experts and market professionals are simply wrong — and those that turn out to be correct may be so by happenstance.
Multiple false recoveries
Although the Great Depression is usually considered to have begun with the market crash of 1929, Benjamin Roth’s Diary shows that time and again, throughout the 1930’s there were mini-recoveries that sucked in investors, hoping to recoup losses of 1929, only to lose the rest of their money.
Read inside Benjamin Roth’s The Great Depression: A Diary on Amazon.com.
Stock brokers, believing that the Depression was over, on several occasions began to open offices and attract business, only to see their hopes dashed.
Another interesting aspect of this Diary is the constant warnings of imminent inflation, which never seemed to materialize until the country entered World War II.
By focusing mainly on the stock market and the economic aspects of the Great Depression, Roth manages to convey the feeling of the slow unfolding of economic events as perceived to participants at the time.
Just as the recent boom in stock prices of 2009 has been taken by many as a signal that the market crisis was over and that buying ’stocks for the long run’ was again the wisest course, Roth’s Diary shows that false signals of recovery may be common in a major crisis and that past history, expert advice, and common sense offer ineffective protection against the raw force of a market that has become unhinged.
A different view of the depression
There are many books about the Great Depression, most of which offer this or that opinion as to why the crisis lasted so long or how the government might have caused recovery to accelerate.
However, Roth’s Diary offers something far more valuable — it is a cautionary reminder that no one, no matter how well educated, well-read, experienced, or blessed with commonsense, has anyway to foresee the timing of an economic recovery from a major financial collapse.
This is a message that is especially relevant in these trying times — a warning that early optimists regarding recovery are often as badly burnt as those who failed to foresee the original crisis.
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