Avoiding Panic


Avoiding Panic


In 1929, the United States rested under the promise of a bright future. Stock market numbers were high, and the economy seemed to be thriving.

Herbert Hoover was elected President of the United States that year, and on inauguration day, he stated, “I have no fears for the future of our country. It is bright with hope.”

This optimistic mood covered the nation and quite possibly had a hand in influencing the stock market’s rapidly soaring prices.

All over the United States, people began plunking down money for stocks, expecting to receive a hefty return.

Many who would not normally invest invested, and many tasted the sweetness of sudden wealth.


But it didn’t last.


The stock market began to plummet in October of that same year, and the prosperity that covered the nation proved to be nothing more than illusion.

What began as an immensely lucrative season for stock investors turned into a living nightmare.


One personal account during the economic downturn in 1929 presents the hopeful morale of an investor named William Minor Lile. On November 6, 1929, Lile wrote in his diary,

“Tremendous break in stocks said to be the biggest slump in 50 years. Our National City Bank stock slumped with the rest and dropped from $500 to $300. But I am not disturbed as I confidently expect this stock to retrieve itself in a few months. If I had the ready cash I should be disposed to double our present holdings in this bank but it is bad policy to borrow money for speculative purposes.”  A few months later, when the situation was looking as dire as ever, Lile scrawled “Bad prophet!” on that diary entry.


The Dow hit its peak at a record high of 381.17 on September 3, 1929. On July 8, 1932, it bottomed out at 41.22.

That is an 89% drop!

Morale was also on a downward slide as entire life savings vanished, and faith in banks disintegrated.

Unemployment and crime rates simultaneously skyrocketed. Everyone struggled, but the middle class took the brunt of the hit.

Soup kitchens and “relief offices” were regularly visited by respectable, once-independent citizens.

Extreme cases found some families living in tents, surviving off the meager earnings of whatever work they could obtain.

Even farmers, who would normally grow their own food, suffered under barren conditions during the Dust Bowl.


The photograph across the top of this page, snapped by Dorothea Lange, encompasses the desperation of so many Americans in the 1930s.

“She told me her age, that she was thirty-two,” Lange says in an account of her experience with the “Migrant Mother.” “She said that they had been living on frozen vegetables from the surrounding fields, and birds that the children killed. She had just sold the tires from her car to buy food.”


The crash of 1929 remains one of the most radical misfortunes our economy has ever suffered.

Debate still transpires among the experts over the cause of the stock market crash that year, but I think it’s safe to say that human logic—or rather, lack thereof—certainly played a part in that fiasco.


Studies show that when it comes to investing, we are not always rational. We buy bad stocks and hang onto them when we should sell. We follow the crowd and forget to trust our instincts. Time and again, we pay for it dearly.

Cathy Pareto with Investopedia highlights a few theories regarding human behavior in the investing world, two of which undoubtedly contributed to the crash of 1929. Pareto claims that investors will assume that the stock prices are the right prices, ignoring the warning signs from outside sources. They “mistakenly extrapolate recent trends that differ from historical, long-term averages and probabilities,” Pareto says. An isolated view of the stock market like this “results in prices falling too much on bad news and rising too much on good news.” And that’s exactly what happened in 1929.


It’s almost as though the Dow has a spell over investors. Stock investors see soaring numbers and jump on the train along with everyone else.

Then, after watching the numbers plummet, they all jump off in a panic. But that’s not before losing monumental amounts of money, because the stocks were a bad investment to begin with.

There has to be a way to avoid those near heart-attack moments and nights spent in the fetal position after suffering extreme loss in the stock exchange.


Gold.


The object of man’s desire for some 6,000 years and the remedy for his investment instability today.

Dr. David Eifrig calls gold a “chaos hedge,” claiming it is insurance in times of crisis. The concept is simple yet effective.

Invest partially in stocks that will potentially offer returns and partially in precious metals that will always hold value and, very possibly, increase in value when stocks are declining.

“Great investors don't focus on rewards...,” Eifrig says. “They focus on risk." When building your portfolio, diversity is key, and low-risk investment in gold is more than just investment.

It’s a safety net.


Irrational decisions in the stock market may be inevitable, but massive loss doesn’t have to be. Invest in gold today and insure your financial stability tomorrow.