1930s Lessons: Brother, Can You Spare a
Stock?
February 14, 2009

By JASON ZWEIG
In the worst of times, which are the best of stocks?
So many readers have emailed me to warn that we
are going into another Great Depression that I
decided to find out which companies and sectors did
best after the Crash of 1929. With the Standard &
Poor's 500-stock index down 39% last year and
another 8.5% this year, it can't hurt to learn what
separated the winners from the losers back then.
The good news is that some stocks and industries did
indeed do much better than average. The bad news is
that the average was ghastly, and even the best
stocks had three rotten years in a row.
With the help of the Center for Research in Security
Prices, or CRSP, at the University of Chicago's Booth
School of Business, I sought to answer this question:
If you had invested on Jan. 1, 1930, after the crash
already had destroyed a third of the stock market's
value, where would you have gotten the greatest
gains?
The short answer: In 1930, 1931 and 1932, nowhere.
There was no real refuge in the storm; even Benjamin
Graham, the great value investor, lost 60% over those
three years.
According to CRSP, only one industry had positive
returns from 1930 through 1932: logging. The two
stocks in that tiny sector, Diamond Match and
Mengel Co., whittled out a cumulative gain of 40% for
the three-year period. Diamond turned timber into
matchsticks; Mengel made trees into packing
materials, primarily for daily necessities like tobacco
and soap.
To find a major sector with significantly positive
returns, CRSP needed to stretch our measurement
period into a fourth year, 1933, when the market
finally rebounded partway from its earlier losses by
rising a record 54%. Even then, out of 120 industries,
only 13 managed to generate gains from 1930
through 1933.
The only clear winner: cheap vices. Among the
sectors with positive returns were cigarettes, cigars
and tobacco, sugar and confectionery products, and
fats and oils, which each gained between 1.6% and
7.5% annually. Those gains were better than they
look, because deflation raised their purchasing power
by an annual average of more than 6% over this
period. It seems there was good money to be made
investing in guilty pleasures that people could afford
even in the hardest of times: sweets, smokes and
fried food.
learn that we could have earned a 5.9% annualized
return by investing in leather tanning and finishing
stocks, for example.
And the agriculture-and-commodity-based economy
of the 1920s and 1930s was quite different from
today's world. Barrie Wigmore is a retired investment
banker at Goldman Sachs Group Inc. whose book
"The Crash and Its Aftermath" is an indispensable
guide to the stock market during the Depression. He
says: "The truth is, we're really in no man's land.
We've never been here before. It's much more
important to focus on the variables that we really
know today without cluttering your mind up with
comparisons to the Depression."
What we do know, Mr. Wigmore says, is that
consumers and corporations alike will be compelled
to deleverage in the years to come. He sees three
obvious opportunities. First would be the shares of
great brand-name companies with manageable levels
of debt, like Amazon.com, Google, Nikeand United
Parcel Service, but only when they are at least as
cheap as they were last fall.
Second, you might consider the stocks of firms that
enable consumers to indulge in cheap vices. Avoid
tobacco companies, which often combine huge legal
liabilities with too much leverage, and brewers and
distillers, which also tend to carry too much debt. But
companies like Costco Wholesale, where consumers
can buy snacks and candy by the crate, and PepsiCo,
which spews out soda pop and corn chips, might fit
the bill.
Of course, some of the industries in the CRSP sample
scarcely exist today. It doesn't do us much good to
What if, like me, you keep most of your stock money
in index funds? Mr. Wigmore has been diversifying
into intermediate-term, investment-grade corporate
bonds, which still offer attractive yields relative to
Treasury securities. Corporate bonds returned 6.7% a
year from 1930 through 1933, a return effectively
doubled by deflation over the same period. Even if
we dodge another Depression, today's yields on
corporate bonds should make them a deal.