Re-reading this chapter of the book «Groucho and I» written by Groucho Marx himself, seems very appropriate for the times. It is the first-person account of his rise and fall in the stock markets on Wall Street in 1929.Nor can we compare the current crisis and foreseeable recession with the crash of 1929. To begin with, the current crash is a credit crash and not a stock market crash, although it is perhaps even more serious for that reason. Moreover, the globalisation of information, electronic impulses in the form of money and today's financial complexity have nothing to do with the scenario of the roaring twenties. But it perfectly defines the feeling we have recently experienced in the last technological bubble, without going any further. A time when «many of the stockbrokerage firms had larger audiences than most Broadway theatres«The "I'm not a butcher", or waiters and butchers talking about the markets as if they were talking about Sunday's game.
Anyway, I'll leave you with the original masterful (if somewhat shortened) text by Mr. Groucho Marx, a genius if ever there was one, and my selection of a few pearls and comments at the end:
«...Very soon a business far more attractive than theatre attracted my attention and that of the country. It was a little thing called the stock market. I met him for the first time around 1926. It was a very pleasant surprise to discover that he was a very shrewd businessman. Or so it seemed, because everything he bought went up in value. He had no financial advisor. You could close your eyes, put your finger on any point on the huge wall board and the stock you had just bought would immediately start to rise. I never made a profit. It seemed absurd to sell a share at thirty when you knew that within a year it would double or triple in value. My weekly salary was about two thousand, but that was small change compared to the money I was theoretically making on Wall Street.
I enjoyed working on the magazine but the salary was of little interest to me. I took confidences about the stock market from everyone. It's hard to believe now, but incidents like the following were commonplace in those days: I got into a lift at the Copley Plaza Hotel in Boston. The lift operator recognised me and said: «A little while ago, Mr. Marx, two guys came up, you know? Real big shots. They wore double-breasted blazers and had carnations in their lapels. They were talking about the stock market and, believe me, my friend, they looked like they knew what they were talking about. They didn't imagine I was listening to them, but when I ride the lift I always keep my ear to the ground - I'm not going to spend the rest of my life making one of these drawers go up and down! The thing is, I heard one of the guys say to the other, »Put all the money you can get at United Corporation" [...] I gave him five dollars and ran to Harpo's room. I immediately informed him about this potential gold mine I had stumbled upon in the lift. Harpo had just had breakfast and was still in his dressing gown. -In the lobby of this hotel are the offices of a stockbroker," he said. Wait till I get dressed and we'll run and buy these shares before the news spreads. -Harpo," I said, "are you crazy? If we wait until you're dressed, this stock can go up ten points!
So in my street clothes and Harpo in his dressing gown, we rushed into the lobby, entered the agent's office and in a jiffy bought one hundred and sixty thousand dollars' worth of United Corporation stock, with a twenty-five per cent guarantee.
For the lucky few who were not ruined in 1929 and who are not familiar with Wall Street, let me explain what this twenty-five per cent guarantee means. For example, if you bought eighty thousand dollars worth of stock, you only had to pay twenty thousand in cash. The rest was owed to the broker. It was like stealing money.
On Wednesday afternoon, on Broadway, Chico met a Wall Street regular, who whispered to him: -Boy, I've just come from Wall Street and there's all the talk there is about nothing but Anaconda Copper. It's selling for one hundred and thirty-eight dollars a share and rumour has it that it will go up to five hundred. Buy it before it's too late! I have it on good authority. Chico immediately rushed to the theatre with the news of this opportunity. It was an afternoon performance and we delayed the curtain call for thirty minutes until our agent assured us that we had been fortunate enough to get six hundred shares. We were thrilled! Chico, Harpo and I each owned two hundred shares of these gold oozing stocks. The broker even congratulated us. He said, "It's not often that someone gets such a good start in a company like Anaconda.
The market kept going up and up and up. When we were on tour, Max Gordon, the theatre producer, used to put me on a conference call every morning from New York, just to inform me of the market price and his predictions for the day. These auguries never varied. They were always «up, up, up».
Until then I had not imagined that you could get rich without working.
Max called me one morning and advised me to buy a stock called Auburn. They belonged to a car company, now non-existent. -Marx," he said, "it's a great opportunity. It will jump higher than a kangaroo. Buy it now, before it's too late. Then he added, "Why don't you give up the theatre and forget that measly two thousand a week you earn? It's chump change. The way you handle your finances, I'd say you can make more money in an hour, sitting in a stockbroker's office, than you can make doing eight performances a week on Broadway.
-Max," I replied, "there's no doubt that your advice is sensational. But at the end of the day I have certain obligations to Kaufman, Ryskind, Irving Berlin and my producer Sam Harris. What I didn't know at the time was that Kaufman, Ruskind, Berlin and Harris were also buying on credit and would eventually be wiped out by their financial advisors. However, on Max's advice, I immediately called my agent and instructed him to buy five hundred shares of Auburn Motor Company stock from me.
A few weeks later, I was walking around the grounds of a country club with Mr. Gordon [...] The day before, the Auburns had jumped thirty-eight whole lengths. I turned to my golfing partner and said, "Max, how long is this going to last? Max replied, using a phrase from Al Jolson. -Brother, you ain't seen nothing yet!
The most amazing thing about the market, in 1929, was that nobody was selling a single share. People were buying all the time.
One day, rather sheepishly, I spoke to my broker about this speculative phenomenon. - I don't know much about Wall Street," I began apologetically, "but what is it that keeps these stocks going up, and shouldn't there be some relationship between a company's earnings, its dividends and the selling price of its shares? Over my head, he looked at a new victim who had just entered his office and said: "Mr Marx, you have a lot to learn about the stock market. What you don't know about stocks could fill a book.
- Listen, my good man," I replied. I have come here for advice. If you don't know how to speak politely, there are others who will be glad to look after my affairs. Now what were you saying?
Suitably chastened and tamed, he replied: "Mr Marx, you may not realise it, but this is no longer a national market. We are now a world market. We receive orders from all the countries of Europe, from South America and even from the East. This morning we received an order from India to buy a thousand shares in Crane Pipes.
With some weariness I asked, "Do you think it's a good buy? -(I thought of a few other things, but I wasn't sure they were on the price lists.) "That's ridiculous," I said. -That's ridiculous," I said. I have several redskin friends in South Dakota and they don't use pipes. -I let out a laugh to celebrate my exit, but he remained very serious, so I continued, "You say they send you purchase orders from India for Crane Pipe? If they're ordering pipes in faraway India, they must know something sensational. Put me down for two hundred shares; no, better still, make it three hundred.
As the market continued to climb towards the firmament, I began to feel more and more nervous. What little judgement I had advised me to sell, but, like all the other cousins, I was greedy. I was sorry to part with any stock, for I was sure it would double in value in a few months. In today's newspapers I often read articles about spectators complaining that they paid as much as a hundred dollars for two tickets to see My Fair Lady. (Personally I think it's worth that many dollars.) Well, I once paid thirty-eight thousand to see Eddie Cantor at the Palace.
Then he looked at his watch and said: "It is too late today. The stock exchange is already closed. But, tomorrow morning, baby, the first thing you have to do is to grab your hat and run to your broker's office to buy two hundred shares of Goldman Sachs. I think it closed today at 156... and 156 is a steal! Then Eddie slapped my cheek, I slapped his, and we parted. My friend, I was so glad I went to see Cantor in his dressing room! Imagine, if I hadn't gone to the Palace Theatre that afternoon, I wouldn't have had that confidence.
The next morning, before breakfast, I rushed to the broker's office just as the stock market opened. I loosened twenty-five per cent of thirty-eight thousand dollars and became the lucky owner of two hundred shares of Goldman Sachs, the best investment company in America.
Then I began to spend my mornings in the office of a stockbroker, staring at a large wall chart full of signs that I didn't understand. Unless I arrived early, I couldn't even get in. Many of the brokerages had larger audiences than most Broadway theatres. It seemed that almost everyone I knew was interested in the stock market. Most conversations were limited to how much this and that stock had gone up last week, or the like. The plumber, the butcher, the baker, the iceman, all yearning to get rich, were throwing their paltry salaries - and in many cases their life savings - at Wall Street.
Even Barney Baruch, the Central Park Socrates and American financial wizard, issued a warning call. I don't remember his exact phrase, but it went something like this: «When the stock market becomes front page news, the time has come to pull back». I was not around at the time of the Gold Rush of forty-nine. I am referring to 1849. But I imagine that that fever was very similar to the one now infecting the whole country.
President Hoover was fishing and the rest of the federal government seemed completely oblivious to what was going on. I'm not sure they would have achieved anything even if they had tried, but in any case the market slid merrily to its doom.
The towel is an apt phrase, because at that time the whole country was crying. Some of my acquaintances lost millions. I was luckier. All I lost was two hundred and forty thousand dollars (or one hundred and twenty weeks of work, at two thousand a week). I would have lost more but that was all the money I had. On the day of the final collapse, my friend, one-time financial advisor and shrewd trader Max Gordon, phoned me from New York. [...] All he said was, «The joke is over!» Before I could answer the phone he had gone mute...he committed suicide.
Of course, the joke was over. I think the only reason I went on living was the consoling conviction that all my friends were in the same situation. Even financial misfortune, like that of any other species, prefers company. If my agent had started selling my shares when they began to falter, I would have saved a real fortune. But since I could not imagine that they could go any lower, I started borrowing money from the Bank to cover the collateral.
Groucho and I (Groucho Marx).
Allow me to highlight a few pearls that I find particularly sobering:
- «Until then, I had not imagined that one could become rich without working.»
- «Shouldn't there be some relationship between a company's earnings, its dividends and the selling price of its shares?«
- «It was a very pleasant surprise to discover that he was a very astute businessman».»
- «No financial advisor Who needed one?«
- «I never made a profit. It seemed absurd to sell a share at thirty when you knew that within a year it would double or triple in value.»
- «My weekly salary was about two thousand, but that was small change compared to the money I was theoretically earning on Wall Street.»
- «...if you bought eighty thousand dollars worth of stock, you only had to pay twenty thousand in cash. The rest was owed to the broker. It was like stealing money.»
- «At first the sales were orderly, but soon panic threw good judgement to the wind and everyone began to throw their securities into the ring, which at the time had only the name of such. Then the panic caught up with the brokers, who began to shout for additional collateral. This was a practical joke.»
- «Unfortunately, I still had money left in the bank. To prevent them from selling my paper, I began to sign cheques feverishly to cover the collateral that was rapidly disappearing. «
- «But as it was not possible for me to imagine that they could go any lower., I started borrowing money from the Bank to cover the collateral».»
- «Even financial misfortune, like that of any other species, prefers company.»
- «Then, on a spectacular Tuesday, Wall Street threw in the towel and simply collapsed.»
- «The joke is over» (...) «In the whole of the swill written by market analysts, it seems to me that no one has summarised the situation as succinctly as my friend Mr Gordon...»: «The joke is over...».»
Of course, the joke is over, but unfortunately it is about a cyclical joke.
Now let's continue writing «swill».» like all other market analysts.
A thousand thanks Mr. Groucho Marx, genius and figure.