What You Can Learn From My ‘Conversation’ With Herbert Hoover

Mutual Funds

The 31st President might have had a lot to say about today’s stock market

OK, confession: I never did actually meet Herbert Hoover, the 31st President of the United States. However, I have read a lot about him. Once this market started to get frothy, the market historian in me couldn’t help but be curious about the 1930s, the Great Depression, and the investment climate that Hoover presided over in his Presidential term from 1928-1932.

I did get an opportunity to meet the Washington Nationals “Racing Presidents” version of Hoover, along with his peers Calvin Coolidge and William Howard Taft (below) at a spring training baseball game some time ago (Hoover is the one in the middle, wearing number 31 of course). But despite that chance meeting with his 21st Century mascot doppelganger, I did not think too much about his time in office until recently.

Stock market flies, Hoover enters

You see, when Hoover came into office, the stock market was roaring. It was, after all, still the “Roaring Twenties.” Technological advances like the washing machine, electric razor, the airplane, radio and refrigerator all came about during that decade. Today, we use our mobile phones to turn those things on, or book reservations on them. All except the razor, of course. But after all of this time without a haircut, one can only hope our phones will figure out a way to get that burden off of us too.

Hoover entered the end of the decade feeling as confident as his fellow Americans were. It did not matter that economic growth was threatened by a consumer spending glut, income inequality, and lingering issues with farm production.

But beyond that, Hoover had a bigger problem. Stock market speculation. It was rampant, and had reached the point where denial and hope were about the only actions left to take. The proverbial horse was out of the barn.

The Crash of 1929: unfortunately, just a “pre-game warm up”

As many investors know, the stock market crashed in 1929. But that fairly brief event was really just a warning shot to investors. They had some time after that to get their portfolios in order, adjust to the new economic realities and push forward with a renewed attitude of protecting what they had. The market system of 90 years ago did not offer nearly the array of tools we have today. But the stock market was not a mandatory part of most people’s lives. Remember, this was way before the 401(k) was created.

Hoover sprang into action right after the “Black Tuesday” crash in 1929. As is the case today, a long list of fiscal policies, including relief for workers, and corporations, were quickly devised and implemented, with the goal of at least buying time. That did happen, and the markets stabilized for a while.

But, you probably know the history from there. For the Dow Jones Industrial Average, it looked like this, from spring 1930 until mid-summer 1932.

Yes, you read that correctly. The Dow lost 86% of its value. And that chart starts about 6 months AFTER the 1929 stock market crash.

What to make of an 86% stock market decline, 90 years later

This is not a scare tactic. It is not a prediction. And it is not an attempt to be dramatic, or take advantage of the strange and confusing times we are all living through together.

This is simply a quick historical reference that reminds us that for those approaching retirement, or already in it, investing is not about “how much can I make.” In the same way that we are taught in basic business education that the first goal of any business is to…wait for it…stay in business, your portfolio should be the same way. This is an especially vital thing to remember at a time when so many hard-working, spirited small businesses are fighting so valiantly to do just that.

But keeping your portfolio in position to fund your lifestyle for longer than you need it to is not that simple. It takes some effort. I think many in my own industry are rethinking their investment process after a decade of minimal disruption from the stock or bond markets.

Come what may, it pays to be prepared and opportunistic

The next few years in the financial markets might be better than anyone expected. Or, they may be more difficult than anyone can imagine. And, they might be somewhere in between. But regardless of what actually happens, the fact is that we all have the opportunity to use history as a guide. We don’t have to just sit there and take it.

Herbert Hoover may be best known for presiding over a financial calamity that occurred during his time in the White House. However, he was also one of the more accomplished humanitarians of the early 1900’s. He participated in a number of projects related to providing food to populations in crisis. In fact, his 1928 campaign film was titled “Herbert Hoover: Master of Emergencies,” and was given the nickname “The Great Humanitarian.”

If there is a budding bull market in anything right now, I think it is in flexible approaches to investing. I think it is about getting the most you can out of your accumulated wealth, while not exposing yourself to the full brunt of additional market selloffs. It can be done, with ETFs, options, cash, and other defensive tools.

You just need to acknowledge them and use them. I hope we can all recognize that while we will all do what it takes to persevere through this health crisis, we can’t just hope our money will do so on its own.

Comments provided are informational only, not individual investment advice or recommendations. Sungarden provides Advisory Services through Dynamic Wealth Advisors.

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