“In warning the market, or in providing it with information that it
ought to have, one must first get the bemused speculators to pay
attention, and then time the announcement soon enough to do
good but late enough to be credible and heeded. Neither task is
easy. In fact, like moral suasion, body English, jawboning, and
asking the congregation to do as the preacher says rather than as
he does – attempting to convince speculators of the errors of their
ways through talk – is generally futile.”
–Charles P. Kindleberger
Ah yes, such was the case of one Roger Babson, an interesting
character when one looks at the history of Wall Street. Babson
was one of the first chartists (Babson Charts), as well as a
financial adviser and economist, who gained some notoriety for
forecasting the Great Crash of 1929. That”s the easy part. The
tough part is to put his pronouncements in historical context, and
the fact is Babson was crying wolf throughout 1927 and 1928 as
the market was rocketing higher from a 1/25/27 low on the Dow
Jones of 152.73 to a 9/3/29 high of 381.17.
Now keep that September 3, 1929 date in mind. Babson
appeared before the annual National Business Conference
meeting on September 5, and said in part:
“.Sooner or later a crash is coming, and it may be terrific.
factories will shut down.men will be thrown out of work.the
vicious circle will then get in full swing and the result will be a
serious business depression.”
But Babson had cried “bear” once too often. As author John
Rothchild put it, “By the time these alarmists get it right, no one
listens to them.”
Longtime market watcher Phil Carret commented, “Nobody was
listening to Babson. That”s because he”d issued the same
warning (before). In fact, he prefaced his 1929 warning with the
statement, ”I”m about to repeat what I said at this time last year
and the year before.””
One newspaper dubbed Babson “the prophet of loss.” Business
Week proclaimed that he was suffering from an attack of
“Babsonmindedness.”
Barron”s said that Babson had actually been crying wolf for four
years.
“The Babson statement could hardly be deemed significant, and
served only as a convenient explanation of the much-needed
corrective of the technical situation.”
But some folks did listen to Roger and, on September 5, correct
the market did. It was to be labeled the “Babson Break.” Just as
comments from Abby Cohen today (or at least in 1998-9) move
the market, Babson”s had a huge impact on Wall Street. The
Dow was trading that morning at 382, above the September 3 all-
time high. Babson”s comments hit the tape at 2 p.m. and the
Dow plunged 4%, immediately, to 367.35 before finishing the
day at 369.77. Trading volume was 2 million shares in the final
hour (the market closed at 3 p.m.), a staggering amount in those
days.
After the Great Crash of October 28-29, which carried the Dow
to 230 by the close on the 29th, investors no longer looked at
Babson as a quack. He became known as “The Sage of
Wellesley,” “The Seer of Wellesley Hills,” “The Delphic Oracle
of Business,” and “The Wizard of Babson Park.”
But, unfortunately for Babson”s legacy, it needs to be brought up
that he had gotten his own clients out of the market in 1928,
missing most of a 50% rally which saw the average close at
exactly 300.00 on 12/31/28. [Now was that rigged or what!]
Plus he missed another 27% in ”29 before the move down.
And then, in the spring of 1930, with the Dow comfortably above
its 10/29/29 close, he urged his clients to get back in the market.
Oops. By 7/8/32, the Dow had collapsed all the way to 41, Tom
Seaver”s number. [This last statement officially eliminates this
masterpiece from Pulitzer consideration.]
But there is more to the Babson story besides the fact that he was
one of the originators of the systematic compilation of statistics.
He was also known for his philanthropy and, yes, he founded
Babson College.
Martin Fridson wrote a terrific book, “It Was a Very Good
Year,” a few years ago. He currently hangs his hat at Merrill
Lynch where he heads up their corporate bond department.
Fridson is also considered to be one of the preeminent experts on
bonds today.
Anyway, after that plug, Fridson wrote of some of Roger
Babson”s “eccentricities.” Among them:
–Babson had suffered through a bout of tuberculosis as a youth
and, thus, he required fresh air at all times. At his offices,
“Windows were kept open even during the winter. Secretaries
wore woolen robes with hoods and sheepskin boots. Unable to
remove their mittens because of the cold, they typed by striking
the typewriter keys with a miniature rubber hammer designed by
Babson.”
–Babson ran for President in 1940 on the Prohibition Party ticket
(seven years after the repeal of Prohibition). He received 58,000
votes out of a total cast of around 47.9 million, or .001%.
–Babson once estimated that “the bad influence of movies
accounted for 85% of all crimes committed in the United States.”
Fridson claims that endangers his reputation as a statistical
expert. I would say, Roger, you”re right on, baby!
–And then, in 1948, Babson decided to devote himself to
“discovering an antigravity substance.” Needless to say, he
wasn”t successful.
Sources: “Manias, Panics, and Crashes,” Charles Kindleberger
“It Was a Very Good Year,” Martin Fridson
Barron”s (3/30/98), article by Robert Sobel
“25 Investment Classics,” Leo Gough
“The Bear Book,” John Rothchild
“Devil Take the Hindmost,” Edward Chancellor
Brian Trumbore
