Why GM’s 80% Stock Drop in 1929 Still Holds Lessons for Today’s Investors

🔥 This Week’s Insights:

• Oil Prices Soar Amid Geopolitical Uncertainty: What It Means

• Can GM’s Recovery After the Great Depression Teach You to Handle a Market Downturn?

• Next Week’s Podcast: How Interest Rates Impact Stocks

WHAT THE MARKETS TAUGHT US THIS WEEK:
📊 Geopolitical Tension in the Air

This week was all about heightened tension in the Middle East and a strong U.S. jobs report. Iran’s missile strikes against Israel caused a spike in oil prices and stirred geopolitical uncertainty, but markets didn’t panic. Why? History tells us that unless there’s a massive disruption, like an oil embargo, markets tend to look past geopolitical conflict.

Meanwhile, the U.S. jobs report came in hot, showing a resilient labor market.

So, while the headlines might feel chaotic, the markets remain calm—for now.

Lesson learned: Stay informed, but keep your eye on the long-term horizon​.

STOCK INVESTING MYTHBUSTERS:
💥Myth: You need to time the market to succeed.

Reality: Timing the market sounds great in theory, but even the pros struggle with it. Consistency beats timing—focus on staying in the market rather than trying to predict its every move.

 UNLOCK INVESTING SCHOOL:
💡The Great Depression and GM’s Ride Through the Crash

You’ve probably heard about the stock market crash of 1929, but let me paint a clearer picture for you.

It wasn’t just an economic blip—it was a financial train wreck.

The 1920s were a time of booming economic growth. People were optimistic, businesses were thriving, and the stock market reflected that. Investors started pouring money into stocks, often using borrowed money (something called margin buying). It was a high-stakes gamble—buy now, pay later, and hopefully, sell for a profit before you had to pay your debt.

By the late 1920s, stock prices had skyrocketed. The market peaked in September 1929, and stocks were trading at ridiculously inflated values. But there was a growing sense that this couldn’t last.

Then came October.

On October 24, 1929 (Black Thursday), stocks started to tumble. Investors panicked and began selling off, but it was October 29, 1929 (Black Tuesday) that marked the real crash. Within two days, the Dow Jones Industrial Average dropped by nearly 25%, wiping out $30 billion in wealth—more than the entire federal budget at the time.

Why did this happen? Here’s where it gets interesting.

There were several underlying reasons for The Great Depression (see the additional readings below to learn more):

1. Overproduction: Factories were producing more goods than people could buy. People were living beyond their means, using credit to fund purchases. Eventually, they couldn’t keep up with payments, and demand for products, including cars from companies like General Motors, plummeted.

2. Bank Failures: Thousands of banks had invested in the stock market or loaned money to investors who had now lost everything. As banks began to fail, people rushed to withdraw their savings in what’s known as a bank run. With no money left to loan or invest, the economy ground to a halt.

3. Global Impact: The U.S. wasn’t the only country affected. The crash rippled across the globe, leading to a worldwide economic downturn. International trade collapsed by over 65%, and countries began raising tariffs to protect their own industries, which only worsened the situation.

4. Speculation Bubble: Stock prices were driven up not by the real value of companies, but by speculation. Investors kept buying into the market, assuming prices would continue to rise, creating a bubble that was bound to burst.

GM’s Journey Through the Crash

Let’s zero in on General Motors (GM), one of the biggest players at the time. It’s hard to imagine now, but back then, GM wasn’t as resilient as it is today.

When the crash happened, GM’s stock took a massive hit. Like many companies, GM had been riding high during the boom, but when people couldn’t afford cars anymore, demand dried up. Factories scaled back production, and layoffs became common.

By 1931, GM’s stock had lost about 80% of its value from its pre-crash highs. Think about that for a second—80%! It’s no surprise that investors were panicking.

The company didn’t just sit idle, though. GM took action. They cut costs, streamlined operations, and focused on efficiency. They even introduced more affordable models to appeal to cash-strapped buyers. But recovery wasn’t quick or easy. It took years before GM started to see signs of improvement.

The key takeaway from GM’s experience? It wasn’t just about surviving the crash—it was about adapting to the new reality.

📝 Practice Problem: Let’s Apply This!

1. Look up GM’s stock: How is GM performing today compared to its 1929 crash? What percentage did GM’s stock fall during the Great Depression, and how long did it take to recover?

2. GM’s stock suffered a huge drop in 1929. Find another time in history when GM (or another industrial stock) went through a downturn. What were the factors, and how long did it take to bounce back?

3. Think about a stock you’re interested in today. What qualities does it have that could help it survive an economic downturn like GM did during the Depression?

4. GM’s recovery: What signs did GM show that it was recovering in the 1930s? Compare this to modern companies like Tesla or Ford—what similarities or differences do you see?

💬 Learner Hint: 

When looking up GM’s stock performance during the Great Depression, don’t just focus on the percentage drop—think about why it dropped. Consider how demand for products, like cars, impacts a company’s revenue and stock price. Also, when you study GM’s recovery, notice how cost-cutting and innovation played a role in its comeback. Ask yourself: what other companies today might follow similar patterns during economic downturns?

If you’re comparing stocks like Tesla or Ford today, think about how these companies are managing current economic challenges. Are they innovating? Cutting costs? What factors might affect their long-term performance?

🧠 Additional Reading & Resources: The Great Depression

How Automakers Accelerated Out of the Great Depression. Boston Consulting Group. 2010. Link to Article (Free).

The 1929 Stock Market Crash. Harold Bierman, Jr., Cornell University. Link to Article (Free).

"Lords of Finance: The Bankers Who Broke the World" by Liaquat Ahamed is a nonfiction book that explores the events leading up to the Great Depression, focusing on the personal histories of four central bankers: Benjamin Strong Jr. (New York Federal Reserve), Montagu Norman (Bank of England), Émile Moreau (Banque de France), and Hjalmar Schacht (Reichsbank). Published in 2009, the book highlights the critical financial decisions made by these men and how their actions contributed to the economic collapse. Released during the 2007-2010 financial crisis, the book was highly relevant and well received, winning the 2010 Pulitzer Prize for History.

Watch on YouTube: Liaquat Ahamed discusses his book, Lords of Finance: The Bankers Who Broke the World, and covers the 2009 financial crisis. After watching the YouTube video on the Great Depression, think about how companies today might handle a similar crisis. Drop me a message or comment on Threads—I’d love to hear your thoughts!

✨ Sharpen your finance knowledge and skills by tackling the challenge!

NEW THIS MONDAY ON THE UNLOCK INVESTING PODCAST:
🎙️ How Interest Rates Impact the Stock Market

Next week, we’ll explore how interest rates shape the stock market, from influencing investor sentiment to driving market trends. If you’re looking to sharpen your understanding of the market's reaction to rate changes, this episode is one you won’t want to miss.

Subscribe on Apple Podcasts, Spotify, Amazon Music or iHeartRadio!

Thanks for reading.

Keep learning and see you next week 👋

Important Disclaimer: The content in this newsletter is for educational purposes only and does not constitute financial advice. All information provided is based on my personal opinions and experiences and should not be taken as a recommendation to buy, sell, or hold any financial instruments. Investing involves risks, including the potential loss of capital, and you should always conduct your own research or consult with a qualified financial advisor before making any investment decisions. Past performance is not indicative of future results.