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Posted on 15 April 2011 | 8,542 views

Charlie Chaplins 1920s Stock Market Crash Advice

On the evening before the 1929 stock market crash, film star “Charlie Chaplin” and Irving Berlin (Songwriter and Composer) were dining together. Berlin at the time had $5 million invested in the stock market. The market’s performance had been remarkable for the prior two-plus years, rising 37 percent in 1927, 44 percent in 1928 and 28 percent during the summer months of 1929.

Irving Berlin was enthusiastic about the future of the stock market but Charlie Chaplin was not quite as enthused as he tried to persuade Irving Berlin to sell all of his stocks, like he did the year before but Irving Berlin wouldn’t listen, Charlie Chaplin told his friend that “Owning Stocks was Unwise” — especially since unemployment was at 14 million and the next day he suffered the consequences.

You may think that Charlie Chaplin was very smart and Berlin was extremely foolish. Charlie Chaplin received many a free meal through the years telling this story. But, was Charlie Chaplin’s advice, which everyone thought was as a good idea, really a bad one?

Chaplin was wrong about unemployment. The night before the crash it was 2 million, not 14 million, or 3.2% which is better than what is considered full employment (there is always a percentage between jobs). US unemployment has never been more than the 13 million at the depths of the Great Depression.

Using the S&P 500 stock index as a proxy for the market, Berlin would have been down to a paltry $1.3 million at the end of 1932. That’s a loss of 74 percent from where he was in 1929. By February 1937, he would have recouped all his losses. By 1945, his portfolio would have grown to $7.9 million. By the time of his death in 1989, at age 101, Berlin would have seen his $2 million grow to $1.1 billion. All this despite a stock market crash, a Great Depression, a world war and numerous smaller crises.

The stock market can be rough in the short term, but over the long term it has historically returned 10 percent annually. This means that every 7 years you should double your money and quadruple it in 14 years.

Each time Berlin is used for illustration purposes, someone cries foul. The reasons offered up are that the time frame is too long and the circumstances back then too different to be relevant today. Invest for the long term — it’s far more exciting to jump in and out of stocks as you flatter yourself with your genius for predicting each turn of the market. Unfortunately, the thrill of trying to take short-term profits in stocks by “Timing the Market” is practically irresistible.

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