|After the Great Crash of October 1929, which ushered in the Great Depression and the bear market of the 1930s, many popular stock market commentators and public figures were discredited. Yet a number of financial writers who made their reputations in the bull markets of the 1920s were able to continue their work throughout the 1930s. These writers experienced both bull and bear markets that were unprecedented in scope and duration, and so their writings still have value for us today. Among these writers were: |
Glenn Munn was a securities analyst for the PaineWebber stock brokerage in the 1920s. He developed a national reputation as a prominent technician (they were known as technicists at that time) and was frequently quoted in the press.
Munn correctly anticipated the bull market of the mid-and late 1920s. Although he did not anticipate the Great Crash of October 1929, he responded to it with cautious optimism that was in keeping with his faith in the US economy — but also recognized the difficult times of the 1930s. He edited the Encyclopedia Of Banking And Finance, the leading financial reference book of the period, and wrote Meeting The Bear Market, a bestseller of the early 1930s.
Munn was an orthodox Dow theorist. He summarized the principles of technical analysis when he wrote: "The theory of the technicist is that each price change, taken in relation to the volume of trading, has significance — more than that, forecast value. He assumes that there is meaning behind each purchase and sale." Munn went on to assert, however, that "this is not to say that price and volume changes . . . can always be interpreted in a way to permit profitable trades."
Munn did not believe that a technician should ignore a company's fundamentals — that is, company-specific information about its operations and prospects. He concluded that "fundamentals and (technical) analysis are incorporated." Nonetheless, Munn admitted, "There are many successful traders who derive inspiration almost exclusively from the revelations of the tape."
Insider trading was accepted as logical and unavoidable during the era when Munn wrote about the markets. He noted that "any new development in a company's affairs, whether favorable or unfavorable, will begin to register itself in the price of the stock in advance of the announcement of the news." Further, Munn noted without disapproval that "those in a position first to know of impending developments will endeavor to capitalize [on] the information." Even today, after insider trading has been illegal for years, stock prices and volume almost always move sharply before a significant corporate announcement, suggesting that no legal system can override human nature.
"Few listed stocks are so friendless as to be without a godfather," Munn observed. He defined a corporate "godfather" as an investment bank, individual, group, or the corporation itself that is willing to enter the market in reaction to price fluctuations. Munn noted that "the sponsors have in mind a minimum price at which their stock should sell under a given set of market conditions, and are prepared to purchase at such a price should it drop thereto." This "sponsorship" gives rise to "support" points at which the interested party or parties will purchase shares, and "resistance" points at which the sponsor will unwind the accumulation of shares. Of course, this phenomenon can also be caused by profit-taking and the use of stop-loss orders, as well as by short-selling and the covering of short sales.
FREDERICK DREW BOND
Another market commentator of the bull market of the 1920s and the bear markets of the 1930s was Frederick Drew Bond. Born in Philadelphia in 1876, Bond worked as a newspaper reporter and editor after his graduation from the University of Pennsylvania, and retired from journalism in the early 1920s to work as a full-time financial writer and advisor. He is the author of Stock Movements And Speculation, published just before the bull market of the late 1920s, and Success In Security Operations, published in the early 1930s.
After the harsh bear markets of the 1930s, Bond expressed appreciation of the difficulties of traders. "Thoughtful and well-informed speculators sometimes seriously underestimate the duration of a bull market," he stated, adding that "there are few things more bitter than to foresee correctly the course of a great break and yet make out of it little or nothing."
Bond identified three factors that influence stock prices. The first is investor psychology, or "the hopes and fears of the participants conjoined with the capital which they are financially able to move." Second is the availability of credit for buying on margin. Third is the distribution of shares — that is, the number of shares available for trade, which today is referred to as the float.
The stock market is more complex now than it was in Bond's day, and it is probably unrealistic to ascribe all stock market movements to Bond's three factors, but they clearly have a significant influence on stock prices.
A third successful financial writer of the 1920s and 1930s was George Seaman. He wrote The Seven Pillars Of Stock Market Success, a bestseller published in 1933 and regularly updated for several years afterward. The title is a play on The Seven Pillars Of Wisdom by T.E. Lawrence, better known and immortalized on film as "Lawrence of Arabia."
The Seven Pillars Of Wisdom is an account of Lawrence's adventures during the Arab uprisings of World War I and was one of the most successful books of its time. Seaman's title was an attempt to exploit the success of Lawrence's book, but was misleading in that The Seven Pillars Of Stock Market Success is actually a collection of dozens of aphorisms and sayings about the stock market. Some are banal and tedious, making the book difficult to get through at times, but Seaman also had some good insights into the stock market. Among his "unchanging" rules:
Seaman asserted that speculators should not be confused with gamblers: "A gambler has little knowledge and bases everything on luck." In contrast, a speculator "trades according to the laws of the market" and "needs no luck."
He urged flexibility. "Be neither a bear nor a bull," he wrote, "have no prejudices; do not love one side more than the other; play the upside or the downside." His advice can be summarized as: be cautious and objective, "always expect the unexpected," and be contrarian by buying out-of-favor stocks and selling stocks that are reaching new highs.
Glenn Munn, Frederick Drew Bond, and George Seaman were experienced stock traders and students of the markets. They learned from both bull and bear markets. As a result, they developed objective approaches to investing that provide useful insights for investors of our own era.
James Maccaro is an attorney and freelance writer. He has written articles for Newsday, Ideas On Liberty, The Massachusetts Law Review, and other periodicals.
Current and past articles from Working Money, The Investors' Magazine, can be found at Working-Money.com.
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