By Jason Zweig
10:17 am ET Nov. 26, 2014
On the 20th anniversary of the Crash of 1929, the Saturday Evening Post asked Fred Schwed Jr., author of the book Where Are the Customers’ Yachts?, to write about what he had learned from it.
I included Schwed’s wonderful book in my post earlier this week about the best books for investors to read, and I’m fortunate to have a copy of his 1949 Saturday Evening Post article in my files. The article, unfortunately, doesn’t seem to be available online, but as the end of the year approaches and the silly season of 2015 market predictions begins to rear its ugly head, it’s well worth listening to Schwed.
First, a word of explanation: Between Jan. 1 and March 16, 1929, the Dow Jones Industrial Average rose from 300.00 to 320.00, or 6.7%, while the predecessor to the S&P 500-stock index had a total return of 5.5%, including dividends. And from June 1 through Aug. 31, 1929, the S&P 500 returned an astonishing 28.6%. Two months later, the market crashed.
With that as background, consider this excerpt from Schwed’s article:
Many Wall Streeters like to pontificate that “the market anticipates conditions.” This is supposed to mean that the action of the market, in its mysterious wisdom, goes down before conditions get bad and up before they get good. It is not unlike a chicken saying to an egg, ‘I anticipated you.’ The chicken is not entirely wrong, but she is certainly not spectacularly right either. As for the market, that was a dandy little job of anticipating that it was doing in the first quarter of 1929.
Bear those words in mind the next time someone tells you that “the market is saying” something—or anything.
Source: WSJ.com, Total Return blog