Buying and Holding and the Dow Jones Companies of 1929

How many companies in the 1929 Dow Jones Industrial Average went bankrupt in the Great Depression? You'll be surprised!

There are lots of ways to think about saving money for the future, and one way to differentiate methods is to separate the idea of “investing” from “trading”. Trading is when you make bets on things you think will happen very soon. You get in and then you get out. You can make lots of money quickly and you can lose it overnight. Investing is buying and mostly holding, but sometimes selling. You are worried about where things are going over a long term and hoping to make good decisions over time. Traders have to watch the market continuously, they have to anticipate every move. Investors can, and probably should, ignore every day noise and focus on finding and holding good companies that will survive and thrive over time. Traders can make money on bad companies if they time it right. Investors will not make money on bad companies, they need to find good ones.

I am an investor, not a trader. I have fallen prey to the lure of some hot stocks in the past, and sometimes I even made money on them. But I made money by getting out of the trade, not by holding it. It’s a lot of work to figure out when to get in and when to get out, and I got it wrong as often as I got it right. I’m done with that. Now I invest.

But buying and holding has some interesting complications as well. What stocks are good enough to buy and hold? A relatively common way to make a choice is to just buy an index. One huge advantage of this is that you don’t have to become a stock market expert. The indexes are pre-selected collections of companies. The Dow Jones Industrial Index are the “top” 30 industrial companies. The S&P 500 are the “top” 500 stocks across all industries. If you buy a fund or an ETF, your returns are reduced by expense fees charged by the companies that run them. Those fees can be high or low. Fees for index funds should be very low because there are no decisions to make. All they do is hold the stocks that are in the index. So the low fees of an index fund are another benefit.

I was thinking about how well buying the index might work in the future, and did some research into what has happened to the companies in the Dow Jones Industrial Index over time. I picked a starting point of September of 1929, right before the big stock market crash that preceeded the Great Depression. If there was ever a bad time to own stock, that would have been it. So what happened to the stocks in the Dow Jones?

Here’s the list of the original stocks:

• Allied Chemical & Dye Corporation

• American Can Company

• American Smelting & Refining Company

• American Sugar Refining Company

• American Telephone & Telegraph Company (AT&T)

• Bethlehem Steel Corporation

• Chrysler Corporation

• General Electric Company

• General Motors Corporation

• General Railway Signal Company

• Goodrich Company (B.F. Goodrich)

• International Harvester Company

• International Nickel Company

• Mack Trucks, Inc.

• Nash Motors Company

• North American Company

• Paramount Publix Corporation

• Postum Company

• Radio Corporation of America (RCA)

• Sears, Roebuck & Company

• Standard Oil Company of New Jersey

• Texas Company (later Texaco)

• Texas Gulf Sulphur Company

• Union Carbide Corporation

• United States Steel Corporation

• Victor Talking Machine Company

• Westinghouse Electric Corporation

• Woolworth Company (F.W. Woolworth)

• Wright Aeronautical Corporation

• Johns-Manville Corporation

There are a lot of companies there that I never heard of. I wondered if they all went out of business during the Great Depression. Surprisingly, they did not! Only General Railway Signal Company actually went out of business in the Great Depression. The other 29 survived! Considering how much of a bloodbath the Great Depression was, that is an impressive survival rate!

What did happen to these companies? It’s been nearly a hundred years so it’s not surprising that there have been massive changes since then. Quite a few of them did eventually go out of business, but mostly not until long after the Great Depression. Here‘s what Claude AI had to say about companies in the 1929 Dow Jones that eventually went bankrupt. Note that most of them didn’t go bankrupt until the year 2000 or later:

Multiple Bankruptcies:

• American Smelting & Refining Company (ASARCO) - Filed bankruptcy multiple times, including major reorganizations in 2005 and other instances

• Sears, Roebuck & Company - Filed for Chapter 11 bankruptcy in 2018

Single Major Bankruptcy:

• Bethlehem Steel Corporation - Filed for bankruptcy in 2001, liquidated assets

• General Motors Corporation - Filed for Chapter 11 bankruptcy in 2009 during the financial crisis, emerged as "new GM"

• Johns-Manville Corporation - Filed for bankruptcy in 1982 due to massive asbestos-related lawsuits, one of the largest product liability bankruptcies in U.S. history

Bankruptcy Through Corporate Evolution:

• Chrysler Corporation - The original entity went through bankruptcy as part of Chrysler LLC in 2009, though this was technically a successor company

• Nash Motors Company - While Nash itself didn't go bankrupt, it merged to form American Motors Corporation (AMC), which later filed for bankruptcy before being acquired by Chrysler

Uncertain/Complex Cases:

• International Harvester Company - Faced severe financial distress in the 1980s and restructured, though the specific bankruptcy status of the original entity versus its successors (Navistar) is complex

• Wright Aeronautical Corporation - Went through various mergers and restructurings, some involving financial distress

So what’s the take away? First, if you want to buy and hold, buying an index might be a good idea. Second, you can’t act like Rip Van Winkle and go to sleep for 30 years once you do that. You still have to pay attention!