The Worst Crash in History Begins

On this day in economic and business history...

"Prices of Stocks Crash in Heavy Liquidation; Total Drop of Billions," read the front page of The New York Times after a 6.3% drop in the Dow Jones Industrial Average (DJINDICES: ^DJI  ) on Oct. 23, 1929. The stock market had peaked that September, and by the end of trading on Oct. 23, the Dow had shed nearly 20% of its value. It was a frenetic day, with 2.6 million shares sold in the final hour as the market plunged to a loss of $4 billion, equal to about 4% of the national GDP.

Eight days after predicting a "permanently high plateau" for stocks, economist Irving Fisher again made his bullish case amid increasingly frenzied pessimism. At a gathering of the District Bankers Association after the market closed on Oct. 23, he reasserted his belief that stock prices were not inflated as much as some bears believed. "Public speculative mania," Fisher said, was at the bottom of a list of reasons why prices had gone parabolic over the preceding year, trailing by far his leading explanation: A number of large mergers had "effected great economies and [had] therefore increased the profits of corporations to a great extent." Strangely, he also cited America's decade-long prohibition of alcohol as one reason for the bubble. Perhaps, having less money to spend on booze, Americans decided to buy stocks instead.

Other market insiders supported Fisher. The Times interviewed several leading bankers on Oct. 23, and their consensus was that "the market might easily be supported since the sound stocks had fallen to levels that made them attractive for investment." One banker found his reason for optimism in the fact that the day's turbulence would "send back to work many people who have been sitting around brokerage offices for a year or so on the trail of easy money." He pointed out that the many thousands of merchants, farmers, and other workers who had abandoned normal business operations to speculate would have to "by necessity have to go back to earning their living in normal ways." If that banker had known what was in store, he might not have been so glib about the economic jolt so many would soon feel.

The sudden drop of Oct. 23 also brought out the poets of Wall Street. H. I. Phillips penned several market-oriented nursery rhymes in response to the drop, which were published in The Washington Post the following day. Here's a collection of three, for your amusement:

Jack Spocks would buy no stocks,
His wife no tips would play,
And that explains just why they both
Got three square meals a day.

There was an old woman who lived in a shoe;
She bought lots of issues untested and new;
She did everything that her broker said to --
Now gone is her money and also her shoe.

I had a little oil stock
No bigger than my thumb;
I bought it on a phone tip --
Oh Lord, but I am dumb!
 

How Apple got its groove back
Apple (NASDAQ: AAPL  ) launched itself into a post-PC era when it unveiled the iPod to the world on Oct. 23, 2001. Analysts and tech-industry insiders enjoyed Apple CEO Steve Jobs' signature promotional flair at the debut of "a breakthrough digital device," which "invented a whole new category of digital music player" that meant "listening to music will never be the same again."

Analysts weren't sure what to make of the iPod. Many were skeptical that its $399 price tag could compete with similar MP3 players, such as the $249 Nomad Jukebox from Creative Labs. The market has long since proven those doubting analysts wrong. Creative Labs lost 70% of its value over the following decade on its native Singapore stock exchange, while Apple went on to post gains of over 4,000%. By the end of 2011, Apple had sold over 300 million iPods worldwide. At that point, Microsoft, which had attempted to enter the MP3 player market with the Zune in 2004, waved the white flag, and announced it would discontinue its device.

How Google found its cash cow
Google
(NASDAQ: GOOGL  ) , the scrappy but fast-growing upstart in the online search wars, launched its self-serve advertising platform AdWords on Oct. 23, 2000. AdWords, in Google's own words, "enables any advertiser to purchase individualized and affordable keyword advertising that appears instantly on the google.com search results page." It was the big breakthrough Google needed to step up from a company with a great product, but a dubious path to profitability, to a highly profitable world-class technology company.

By allowing anyone to easily access millions of potential viewers by simply selecting a few keywords and bidding on how much they were willing to pay, Google expanded the advertising market from the traditional sphere of mid- and large-sized companies, to anyone who needed to attract some attention and had a little money to make it happen. The results were readily apparent: Within the first year of AdWords' operation, Google booked more than $70 million in advertising revenue, a huge leap from just $220,000 in total revenue in 1999 and a modest $19 million in 2000. Google continued to refine and expand on its advertising platform, and revenue continued to soar. Its $3.2 billion annual revenue stream in 2004, the year of its record-breaking IPO, was 3,600% greater than its total in 2001, the first full year of AdWords' operation. And by this point, many of Google's biggest product breakthroughs were still ahead.

Google's advertising revenue continues to drive the company's engine of innovation today. The company's 2012 ad revenue\, at $43.7 billion, represented 87% of its total revenue. AdWords had helped to propel Google's advertising revenue 80% higher each year for 11 straight years -- a truly impressive feat of growth for a young company.

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Read/Post Comments (8) | Recommend This Article (18)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 23, 2013, at 11:52 AM, cubsfan1967 wrote:

    I'm sorry but what is the point of this article? Just to document the history of the (well trodden, well known) tech giants of today? How does this tie in to lessons of the 1929 stock crash? I really have no idea what the point is in this other than (cynically) to generate user clicks like, unfortunately, me

  • Report this Comment On October 23, 2013, at 11:54 AM, jdmeck wrote:

    Apple versus Google will always be a really stupid comparison.

  • Report this Comment On October 23, 2013, at 12:17 PM, desertracer1 wrote:

    What a " foolish " article.....worthless.

  • Report this Comment On October 23, 2013, at 12:38 PM, aig09 wrote:

    Why Motley Fool would publish this sort of junk article to tarnish its reputation, just for a self-entertainment of an errantic minded author himself

  • Report this Comment On October 23, 2013, at 4:52 PM, miteycasey wrote:

    the first half was good and the second half was well written, but what do they have to do with each other?

  • Report this Comment On October 23, 2013, at 5:03 PM, captaintodzilla wrote:

    Unsafe streets , extreme poverty , mass shootings , bombings , children molested , schools drained , but hey .....congress is rich , gays are prioritized ,and corporations are protected and find ways around paying taxes. Good job America lots to be proud of. currently we have blind leaders supported by a nation of masterdebaters.

    The government is acting like a sixteen year old kid that thinks it knows everything. "If there isn't justice for the people let there be no peace for the government." Doing the same thing over and over is insane. Fix America First. Prioritize. Recycle America ,turn things around. The Government should fear the people, opposite of how it is now. the government should protect people and regulate corporations not protect corporations and regulate people. We need to Build a good foundation then rebuild. Reinstate common sense. Create Accountability and most of all treat our cancers greed , ignorance and self-entitlement.

    Our society runs the way it does because it is designed that way for the rich by the rich. There are many common sense simple ways to change things to make a better world to live in. Until we can prioritize correctly , have accountability , and worry about the American instead of the American dollar things will remain perverted.

    Anyone can find fault -- it's not a sign of anything other than moderate brain activity. It's much harder to offer creative criticism that actually improves the situation for everyone involved, UNITED we stand divided we fall...there is only one race the HUMAN RACE all the divisions of political parties and skin color have demoralized this country into a sewage plant of lying stealing ignorant greedy self-entitled hypocritical idiots the government has had too much money power and time with too little results actions speak louder than words.

    Being successful doesn’t necessarily make you great. What makes you great is when you reach back and help somebody else become great. unfortunately no one cares. no one with power anyway. enlightenment finally after watching Swipe yo EBT (It's Free) on you tube everything fell into place. now that the middle class has been eradicated the united states are truly united once again now we are left with the rich and the poor that equally agree on greed ignorance and self-entitlement. both parties the rich and the poor demand something for nothing are good for nothing have no morals and only care about themselves. actions speak louder than words.

    If Being smart enough to do the job replaced being rich enough or politically correct enough then we would have a chance. as long as playing the blame game masterdebating and spending other peoples money is all our government is capable of ( actions speak louder than words ) then the next civil war the 99% vs. 1% will be ugly.

  • Report this Comment On October 23, 2013, at 9:29 PM, Radmasters wrote:

    The stock market is a joke and not a real good indicator of the economy.

    When stock prices go to several hundreds of dollars per share and the stock is not a dividend stock what is the point of owning it.

    Apple for example cannot sustain a continued upward price for its stock as it is a one trick pony, and the pony is getting old.

  • Report this Comment On October 27, 2013, at 12:49 AM, Sczandi wrote:

    Captain Todzilla said it. So did Thomas Jefferson.

    Thomas Jefferson was right in 1784. “Our leaders will become corrupt, our people careless.” LOOK AT US NOW . OUR ‘EMPLOYEES’ HAVE CLOSED DOWN OUR GOVERNMENT. and with the Postal Service cutting back our services and workers

    what corrupt Government employees approved paying millions of dollars to support a 2 week televised SPORTS event (the 2013 New York

    US TENNIS OPEN)??

    ThAT IS pure corruption - as illegal as anything known - -stealing our tax dollars for someone's private engrandizement as BIG SPENDER

    throwing away what's left of OUR tax money in the Postal Service so they can really say IT IS BROKE TO SUPPORT TAKING AWAY OUR SERVICES. And what will we, the people, do about it????

    We should rebel. We should find out who authorized this waste and make them repay it to US - it is our money.. to .support the General Good of ALL American people. Let's do it AMERICA !

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