The Crash of October 1929 has been written about extensively from US sources because Wall Street dominates the world, as the song says if you can make it in New York you can make it anywhere. It the hinterland, are places like Canada. What happened in Canada is of concern for the ripple effects. In a book called Gold Diggers of 1929 – Canada and The Stock Market Crash by George Fetherling published by James Wiley and Sons, Toronto, 2004, the book asks what did happen? The reality is even without the crash on the stock market, the depression would likely have occurred, the crash just meant the easy party was over. Credit tightened in which the bankers’ response for a loan was no, no and no.

In Canada, Toronto was always had a concentration of mining companies listed on stock exchanges. Most of them never produced a mine, but had claims that likely some mineral content existed. For years the exchange was corrupt. The brokerages sold stock to primarily American and European individuals and stock prices were manipulated. It was helped that mining was seen and generally was an individual grub staking enterprise – people would go into the bush and hunt for minerals. In that regards, the myth built up but in order to dig and bring the minerals to market it took money. Most people who go into the bush are not skilled at mining finance, although a few were. It was during the 1920’s when some of the richest mines in the world were found; the others were not so rich.

In the 1920s, there were articles in the newspapers, most people read newspapers about how to could make money on the stock market and as a result the number of offices expanded. In addition, the rules of margin meant only a small amount had to be put down and the investor was buying stock. People forgot that profits are only realized when you sell, not while holding the stock as the price rises and falls. There is still an age old question of when do you sell?

The crash of 1929 happened and prices decreased, partly because of margin calls – if you only put a little down, when the price went up the profit was greater, and when the price fell more cash was called for. Do you sell or put more money in? In turns out the best strategy was to wait a few days or months and buy in the future. The last crash in 2008 took 3 years before it was a great time to buy, if there was cash. As a result of selling, there was great consolidation in the brokerage sales system or offices closed. There was work for the company – eventually governments of all levels borrowed money for infrastructure works and to help the unemployed.

Linking to dividend paying stocks, when there is a crash all securities will come down in price – it is a given. If you have patient capital, you can ride out the storm. If you have access to cash, it can be a great time to buy quality stocks at a bargain. The quality stocks will tend to move back to normal in the shortest time frame. The payment of the dividends allows you to have patience capital as well as buying more or reinvesting the dividends. There is no perfect answer.

There are more questions than answers, till the next time – to raising questions.