My father was born in 1932. The only thing my father said about the Great Depression was about being hungry all the time when he was a boy. He and his brother were once so hungry they ate dried powder Jell-O. My dad turned out to be a hoarder of scrap wood, nuts, and bolts on his farm.
My father-in-law was born in 1920. He turned out to have a life long hatred of the stock market and refused to ever invest in stocks.
After reading this book, I better appreciate how the Depression experience changed their lives forever.
During the Roaring Twenties, the Dow Jones average grew at a compounded growth rate of 16% a year. It increased from about 100 in 1920 to 381 in 1929. This boom period is similar to the decades of the 1980s and 1990s. In each of these decades, the stock market appreciated at a compounded annual growth rate of about 18%.
It is hard for me to comprehend the stock market shrinking in value by 90%. I first started investing in stock mutual funds in 1980. I lived through the 1-day decline of 22% in 1987, and the roughly 50% declines in both the Tech Wreck of 2000 and the Sub-Prime Crash of 2008. I stayed the course and stayed fully invested through these declines. I am not sure I could stay the course through a 90% decline like in the Depression.
It was interesting to read about Roth's struggles to understand all the economic factors changing around him. It seems that 70 years later in 2008, nobody really understands economics yet. When the first rumbling of troubles in the real estate market surfaced in 2006, I remember an "expert" talking head on TV commenting on the situation. His prediction was that since real estate and construction were less than 10% of the annual GDP, even if we lost the whole sector it would not have much impact on the economy. He did not realize that like the Great Depression, highly leveraged investments implode when the market prices goes down.
I liked Roth's internal struggles to develop an investment strategy that would survive the inevitable boom and bust cycles. He trends towards buying investments at the bottom and selling at the top. He then realizes it is almost impossible to make 2 decisions at exactly the right times (the buy and sell decisions).
The Great Depression prompted other to try to develop a better investment strategy. Benjamin Graham settled in on a portfolio with both stocks and bonds. He suggested the stock portion range from 25% to 75%, with the balance in bonds. He suggested buying stocks when they were selling for less than 50% on the dollar, and selling when they reached 100% of their intrinsic value.
Roth observed that investors with a diversified portfolio did ok. This included blue chip stocks, government bonds, and real estate. None of these should be purchased using borrowed money.
It is too bad the authors did not add a graph of the Dow Jones from 1920 until 1940. This graphic would help readers to understand with an image how high the market went, and how dramatically it declined.
If you are going to attempt to grow your wealth over time, I highly recommend you read this book.
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Top reviews from other countries
Ajay Maheshwari
Insightful and thought provoking
Reviewed in India on February 17, 2023
Kopfhörer
Interesting but way too repetitive
Reviewed in Germany on October 13, 2022Raphael F.
Melhor livro sobre a grande depressão
Reviewed in Brazil on September 5, 2020Henry
Most worthwhile read in quite a while
Reviewed in Canada on February 25, 2020
