A real oldie and classic from 1962 Barron’s – see the letter from Irving Kahn to the editor below
H/T David T
1962 Is No 1929 To the Editor: During and following economic convulsions such as our recent stock markets, it is easy to lose sight of hard facts. Editorials and articles are now alluding to "another 1929." Let's look at the stock market record for both years.
Canyon Distressed Opportunity Fund likes the backdrop for credit
The Canyon Distressed Opportunity Fund III held its final closing on Jan. 1 with total commitments of $1.46 billion, calling half of its capital commitments so far. Canyon has about $26 billion in assets under management now. Q4 2020 hedge fund letters, conferences and more Positive backdrop for credit funds In their fourth-quarter letter to Read More
In 1929, our principal market, the Now York Stock Exchange, listed 1.1 billion shares. Today it lists 7.1 billion shares. Thus to com-pare the trading volume of these years requires a multi-ple of almost seven. If we use average price per share, this multiple becomes three. Properly adjusted, the recent high daily volume, in-stead of looking like 1929, looks modest indeed.
To reach the same proportions, the recent 14-million.share day should have been be-tween 50 and 100 million shares. By another measure, the annual turnover of shares listed, the 1929 ratio reached 119%. Every listed share was bought and sold more than once during the year. But last year this ratio was only 11%, or less than one-tenth of 1929.
Comparing 1962 to 1929 is like looking at a photograph of a man and a highball glass and saying they both are about equal in size. The mind corrects this tr,ompe d'oeil because it knows that the man is in the far back-ground while the glass is right up front. Based on dollars rather than shares, 192$'s trading reached a total of $125 bil-lion, 1961's $53 billion. But at 1929's year-end, the mar-ket value of all listed shares was $65 billion.
Almost 33 years later, at the end of 1961, the value was $388 bil-lion. In the earlier year, all member firms borrowed $8.5 billion, but despite an almost sixfold increase in value, last year their debt dropped to $3.7 billion. In percent-ages, the highest debt was about 13% at the end of 1929 and under 1% at the end of last year. We realize that other bas-ic figures, like borrowing from banks, new corporate issues, unlisted trading and important areas of the in-dustry are not covered.
Pending studies by the Se-curities and Exchange Com-mission and the New York Stock Exchange will bring us further understanding of what has been happening. It is quite important, es-pecially to those who were not adults in 1929, to under-stand how different that year was from this. Without experiencing the differences, it is easy to cite apparent likenesses. From this false comparison it is natural to suggest an implied forecast of a depression in the sixties like the one that did occur in the thirties.
As we have tried to show, the internal figures of stock trading refute any close parallel between these two years. Understandably, a large and violent drop in prices awakens fears for the future. It is the duty of all professionals concerned with investing to guide the lay investor away from easy but false comparisons.
IRVING KAHN Abraham & Co. New York • •