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What Will You Be Doing The Day Before The Market Crashes?
The Dough Roller regularly looks Back to the Future because “even if the time for action has gone by, the time for extracting a lesson from history is ever at hand for those who are wise.”–Demosthenes (384-322 BCE)
I was browsing through an antique store this past week and found some old bank checks. Let's just say they don't make checks like they use to. Here's one written from a PepsiCo account:
This reminds me of drinking Pepsi from a glass bottle (I know, I'm showing my age). But there was one check that really caught my attention. Can you tell why? Here it is:
Notice the date of the check--6 September 1929. This is just three days after the Dow Jones peaked at 318(!) and just over one month before the Crash of 1929. I look at that check and think of these folks conducting their normal business, completely unaware that in a matter of weeks, the market crash would initiated a decade long financial crisis. Were they prepared? Did they assume that the bull market of the 1920s would continue forever because things were "different" than before? And the real question is this--are we ready for a market crash? I'm not one to constantly predict gloom and doom in the markets, but given a long investing horizon, it's likely that we all will experience significant market declines during our investing years. How will you react when your investments decline by 30, 40 or 50 percent (or more)?
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I wasn’t too fussed by ‘87 so I hope I’ll deal with the ups and downs of the market OK. One thought that came to mind was how effective was diversification and asset allocation in practice – ie. if you had 1/3 your assets in stocks in 1929, 1/3 in real estate and 1/3 in bonds how would you have fared over the next decade?