Learning from Stock Market Past
You’ve hear the saying: “Those who do not learn from history are doomed to repeat it.” Is this the case right now with the current stock market troubles and the state of the economy? In many ways it would seem so. The Motley Fool quotes from something written in 1930, after the great stock market crash, by Alexander D. Noyes in The New York Times:
We have come to a curious turn in the economic road. Things have happened during the past 12 months in our financial and economic history that we had taught ourselves to believe would never happen again. …
We had contrived new formulas for expanding credit which were to make us independent of the vicissitudes and insecurities of other periods. … One of the cardinal maxims of the last three years had been that the “business cycle” was abolished; if, indeed, it had not always been a myth.
Um, wow. This sounds almost exactly what began happening as derivatives were introduced, de-regulation set in and leaders proclaimed that our system was too “sophisticated” to succumb to the problems of the past. Indeed, the myth of continued growth — without the need for occasional downcycles — also reappeared.
And it seems as though we are on our way to another crash of monumental proportions. And even if the stock market does not completely collapse, our economy is in a state that hasn’t been seen for more than 70 years. Are we going to learn the lessons of history this time? It certainly would be a good idea to consider value investing, understanding what it is we’re investing in and re-assessing how we make (and spend and borrow) money. It is also worth learning the lesson that reasonable and prudent government regulation can stand in the way of unbridled greed and reign in some of the practices that led us to this point.
