Book Review: 101 Years on Wall Steet

In 1875, The Native Share & Stock Broker’s Association which today is known as Bombay Stock Exchange was formed. While not as old as New York Stock Exchange which trails its roots to the Button Wood agreement of 1792, Mumbai Stock Exchange is the oldest exchange in Asia.

It was’t until 1986 that the good folks at Mumbai felt the need to have an Index by which to measure the performance of the market. This lack of foresight has meant that today, we have no clue as to the behaviour of the markets during the course of our Nation’s Wars with Pakistan and China, the impact of Bank Nationalization by Indira Gandhi, the Emergency among other major events.

The 19^th Century in the US was one dominated by Rail as the Nation progressed Westward and new territories were connected to the mainland. It isn’t hence surprising that the first Index created in the United States was what later would be called the Dow Jones Transportation Average.

While the Transportation Index was birthed in 1884, the better known and frequently followed Dow Jones Index was created in 1896. While we have had older exchanges, notably the Amsterdam Stock Exchange which was formed in 1602 and the Paris Stock Exchange that followed in 1724, we don’t have a continually running Index that spans for more than a Century other than that of the Dow Jones.

101 Years on Wall Street by John Dennis Brown is a book that is part historical and part statistical about the journey of the years 1890 to 1991 when this book was published. Chapter 2 of the book and the largest chapter covers every year with the happenings that took place and the impact it had on stocks and sectors.

Thanks to the fact that we have data, we know how the Dow performed during the years of War and Peace, but data misses context on the emotions during those times. How was activity, what were the sectors that were seen as benefitting from the War Drums.

Interesting to read that “Sugar” sector was seen as a reliable war sector though one wonders why.

The Year 1914

America thanks to its Geographical positioning has had not had its mainland attacked despite being part of multiple wars. Hence, looking at the performance of Dow during its many conflicts may not have meaning for investors like us in countries like India where war can bring damage and destruction of large parts of the country.

The book contains some very interesting tit bits of information – such as fixing the price of Gold. Do note that this was decades before United States terminated convertibility of the US dollar to gold. The higher the price of Gold, more the Dollars required to convert it back and hence more that could be issued by the Government of the day. Nice setup, Right?

When we think of long term, seldom we think of decades, let alone century. America owes a lot to the Industrious captains of its Rail Industry who build the back-bone of the Industrial Infrastructure – the Railway Lines. It hence isn’t surprising that the first Index was a Transportation Index that comprised of 20 Railroad Stocks.

The thing about Infrastructure projects is that they are long gestation projects. Companies that are able to source large capitals at low interest rates and for very long periods of time emerge survivors. It’s not surprising then to see that US Rail companies were issuing 100 Years bonds at a time when Life Expectancy in US was close to 40 years at best.

Other than the yearly summaries, the book goes to provide context and detailing of the Bull and Bear Markets it went through.

And Bear Markets

 All in all, the book is an interesting read for some-one who wants to understand the context and behaviour of the markets of an era most of us know only through books. Let me conclude by Quoting from the book itself,

What all those stock tables and tales, books and charts illustrate is an endless repetition of psychological patterns, frenzied speculations followed by panic and desperate credit crunches. Both the highs and lows always magnify the facts. The restless market has not changed…

Each decade has offered two or three splendid opportunities to make serious money in the stock market. And, approximately the same number of opportunities to be financially blind-sided. The patterns will continue

As Jean-Baptiste Alphonse Karr once said, the more things change, the more they continue to be the same thing. Human emotions of Greed and Fear don’t change easily. But books like these provide one with the framework on which to work upon as we go about building our portfolios and risk our monies in the market.

Amazon Link: One Hundred Years on Wall Street: Investment Almanack