Here’s a reminder about the markets, emailed to me by a client from the Greatest Generation over the weekend. What she sent was not only relevant because I went to Babson College, named after Roger Babson. The quoted passage below shows that with open eyes, a heavy dose of skepticism and abundant caution, you can prepare your portfolio for hard times, or “reef your sails” as Babson says.
“Fair weather cannot always continue. The economic cycle is in progress today, as it was in the past. The Federal Reserve System has put the banks in a strong position, but it has not changed human nature. More people are borrowing and speculating today than ever in our history. (These days even student loans are used for speculation.) Sooner or later a crash is coming and it may be terrific. Wise are those investors who now get out of debt and reef their sails. This does not mean selling all you have, but it does mean paying up your loans and avoiding margin speculation. . . .
Sooner or later the stock market boom will collapse like the Florida boom. Some day the time is coming when the market will begin to slide off, sellers will exceed buyers, and paper profits will being to disappear. Then there will immediately be a stampede to save what paper profits then exist….As soon as word gets abroad that the large American investment trusts are selling, the European houses will begin to sell out their customers who are now buying in the American market. The general public will then follow with a desire to cash in, then margin accounts will be closed out, and then there may be a stampede for selling which will exceed anything that the Stock Exchange has ever witnessed.” – Roger Babson, economist, September 1929, in William K. Klingaman’s, 1929: The Year of the Great Crash
