The Great Gatsby was set in the 1920s. It was a decade of excess and a booming stock market. The end of World War I in 1918 sowed the seeds for what became one of the best bull markets in history. Incidentally, the boom eventually led to the biggest bust we’ve ever seen. The 1930 crash ushered in the Great Depression, an economic malaise that lasted for over a decade and affected an entire generation.

Buying stocks in the late 1920s was all the rage. Huge gains were being had every single year and the chance for riches beckoned to one and all. It invaded the public’s psyche, spurring everyone from the shoe shiner and street sweeper to the seamstress and homemaker to come and try their hand at investing.

To reveal just how far the speculation bug had infiltrated the masses, in the summer of 1929 an article appeared in The Ladies’ Home Journal titled “Everybody Ought to Be Rich.” It featured an interview with a financial executive at General Motors named John J. Raskob where he made eye-popping predictions about how to get wealthy buying stocks. He said a $15 investment per month into good common stocks would grow to $80,000 over the next 20 years.

Only a few days later the Dow peaked at 381.17 and ultimately crashed to 41.22 over the next few years, making Raskob look like a fool.

The ill-timed advice was ridiculed for years and put up as an example of the hysteria and outlandish forecasts seen near the end of a bull market.

But, here’s the twist.

Raskob was right to extol the virtues of equity investing – despite the crash that followed. If Holly homemaker followed his advice, she would have made more money than all other investment alternatives. More than cash, T-bills, bonds, gold, real estate, you name it. Though those monthly $15 allotments didn’t grow to $80,000 over 20 years, they still piled up to a tidy sum.

The Tally

Let’s look at the numbers.

After 4 years of investing $15 into stocks each month you would have accumulated more than the worry-wart who put the same money into Treasury bills.

After 20 years you accumulated $9,000, an annualized return of 7.86%, or more than double the annual returns generated in bonds.

After 30 years, the portfolio ballooned to over $60,000 with annual returns of 12.72%. This princely pile was 8x larger than what you made in bonds over the same time frame and 9x larger than what T-bills created.

This story and the stats came from Jeffrey Siegel’s book, “Stocks for the Long Run” which I highly recommend if you want to learn more about the narrative and numbers behind why equities are so darn sexy. Here was Siegel’s takeaway,

“The story of Jon Raskob’s infamous prediction illustrates an important theme in the history of Wall Street.  Bull markets and bear markets lead to sensational stories of incredible gains and devastating losses.  Yet patient stock investors who can see past the scary headlines have always outperformed those who flee to bonds or other assets.”

These are the types of stats and stories that I remind myself of each and every time a bear market comes to town. It’s why I advocate putting cash to work during downturns and why I’m not ashamed of pounding the table on tactics like the capital deployment scheme discussed in Monday’s Tales of a Technician blog.

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