By John Pangere, CFA, Strategic Investor

Benjamin Roth had one job to do.

Creditors hired the young attorney from Youngstown, Ohio to collect a bad debt. He’d have to track down a delinquent borrower and wrestle $50 from him.

Business was bad. Money was tight. Everyone was just trying to get by.

Roth, like many other World War I veterans, had a family to support. He did what he had to do to survive during the Great Depression.

Times were so bad debt collectors like Roth felt bad chasing down delinquent borrowers. Nobody escaped the Depression. Each sign of hope faded into more suffering. Things got worse and worse until people thought they’d never get better. That’s what finally marked the bottom.

Roth survived the Depression. However, the man Roth had to collect from wasn’t in good shape. As Roth put it on December 14, 1931:

The record shows that in 1930 – over a year after the big stock crash – this man invested over $100,000 in common stocks at what then seemed to be bargain prices. The total value today at market prices is $30,000.

Just six months before, Roth wrote:

Immediately after the 1929 crash, the speculators rushed in to buy “bargains” but were badly mistaken, because the market kept going down and down even though industrial leaders kept on assuring the people that everything was fine and the worst was over.

If this sounds familiar, it should.

The story of Roth and the borrower he had to track down is a window to a point in history that almost no one today has experienced. But it also serves as a guide for what to do – or more importantly, what not to do – next.

Cheap Can Get Cheaper

The 1929 stock market crash didn’t just happen overnight. It was a buildup of excesses from the roaring twenties.

When the bubble finally burst, not everyone recognized it.

Even though plenty of investors lost big on Black Monday, it wasn’t the initial crash that wiped them out. The Dow lost over 40% of its value from its highs.

Then investors started buying the dip.

It was the “bargain” hunting of the ensuing months that signaled the death blow.


If you look at the chart closely, the buy-the-dip crowd thought boom times were back by around April 1930. Then things changed. It wasn’t until around July 1932 that investors finally gave up. 

Just like the borrower that went all-in in 1930, far too many people today are “buying the dip.” And with a rebound of 27% on the Dow as I write, it’s looking like a great move:


However, we don’t know what will happen tomorrow – let alone in the months ahead. It might feel good right now.

But ask yourself, “Does a rising stock market reflect reality?”

In 1930, investors thought so. Then they went bust.

Don’t Bet on a “V-Shaped” Recovery

According to the U.S. Bureau of Economic Analysis, consumer spending accounts for almost 70% of the entire economy. Of that, about 40% is retail sales. In March, total retail sales fell 8.7%, the worst drop-off since the Commerce Department started tracking the number 30 years ago.

At the depths of the 2008 financial crisis, retail sales only fell about 4%.

Keep in mind, businesses were still open for at least half of March. The April numbers will probably be far worse.

Businesses aren’t running. No one is traveling. Spending is all but gone except for the basics.

Goods will start piling up and employers will cut even more jobs. There’s no telling how long this could go on.

Meanwhile, politicians and talking heads are optimistic that when they signal the all-clear, things will go right back to normal. They talk of a “V-shaped” recovery. But that can’t happen unless people start spending again in force.

Today, over 30 million people are out of work in the last six weeks.

No jobs. No paychecks. No spending.

This isn’t to say we’re headed for another depression. Every downturn is different. No one knows how all of this will end until it’s over.

However, we doubt all the jobs lost will come storming back in the months ahead. According to the Small Business Administration, small businesses with fewer than 500 employees make up about 45% of GDP and nearly 50% of jobs. When a number of these businesses fail to reopen because they run out of cash, there won’t be a job for many people to go back to.

When you stop the heart of the economy from beating, it’ll take some time before it gets pumping again.

The point is, the economy had a heart attack. Today, it’s on life support. Now’s not the time to buy with the crowd.

Instead, be patient – and strategic – and pick your spots carefully.



John Pangere
CFA, Strategic Investor