What One Investing Great Learned from the Vice Squad
Stock prices have reached what looks like a permanently high plateau.
— Irving Fisher
It was October 1929, and optimism filled the air. Investors crowded into brokerage offices to watch ticker tapes print higher and higher prices. Then came Fisher’s confident proclamation, and 9 days later, the market began its most infamous collapse.
By mid-November, the Dow had lost almost half its value. The slide didn’t stop until the summer of 1932, when it sat 89 percent below its peak.
Everyone, deep in their hearts, is waiting for the end of the world to come.
— Haruki Murakami
Murakami wrote that line in his novel IQ84, capturing one side of the investor mindset, the fear that something catastrophic is always just around the corner. Yet in practice, most investors lean the other way. They assume the good times will roll on and on.
Some are wise enough to know prices can fall, but convince themselves their holdings are immune. They take comfort in owning “safe” stocks: the big, the fast-growing, the shares in companies producing bleeding-edge tech. Even if the market turns, these investors believe they will be protected.
The great Boston investor Paul Cabot had a different perspective, one that he apparently picked up from the Vice squad.
When the cops raid a whorehouse, they take away all the girls. You can't believe a panic until you've lived through it.
— Paul Cabot
Cabot knew from experience that, in a true market panic, everything gets sold. No stock is too good, no name too respected, to be spared from the selling wave.
For more on the great crash, read The Great Crash 1929, John Kenneth Galbraith's classic and enjoyable history.
Deep dive into Paul Cabot with Passion for Reality: The Extraordinary Life of the Investing Pioneer Paul Cabot. There's also an enjoyable, brief profile of Cabot in The Money Masters of Our Time by John Train.
And don't overlook Haruki Murakami's top-selling IQ84, one of the best-regarded novels of the 2010s.
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