(One of a series of weekday posts about the life of Winston S. Churchill.)
The late comedian Fred Allen once said that after the market crashed in 1929 surprised Americans asked their friends: “Did you know stocks could also go down?”
Allen’s line nicely captures the pre-crash euphoria that gripped most investors, leading them to believe the stock market was an “up, up, up” only place.
Churchill was one of those caught in the euphoria. We see that in excerpts of letters he sent home to Clementine while he was visiting California just weeks before the market crashed:
From a letter dated September 19, 1929 and headed “All vy Secret”On September 29, exactly one month before the day generally agreed to mark the start of the market crash, Churchill wrote Clementine:
Now My darling I must tell you that vy gt & extraordinary good fortune has attended me lately in finances. Sir Harry McGowan asked me – rather earnestly – before I sailed whether he might if an opportunity came buy shares on my account without previous consultation. I replied that I could always find 2 or 3000 (All money amounts are pounds. – JinC).
I meant this as an investment limit i.e. buying the shares outright. He evidently took it as the limit to which I was prepared to go in a speculative purchase on margin. Thus he operated on about ten times my usual scale, & … made a profit on our joint account of 2000 in Electric Bonds & Shares.
With my approval he reinvested this in Columbia Gas & Electic & sold at a further profit of 3000. He thus has 5, 000 in hand on my account, & as he has profound sources of information about this vast American market, something else may crop up.[…]
I have also made friends with Mr. Van Antwerp & his wife. He is …a gt friend of England [and] a reader of all my books – quite an old fashioned figure – He is going to look after some of my money for me. His [stockbroking] firm have the best information about the American Market & manipulate it with the best possible chances of success. All this …I am sure …will prove wise.Churchill lost heavily in the market crash. Friends helped him out with generous loans, some of which were later forgiven.
Whenever I make foolish investment mistakes, I tell myself: “John, you were just being Churchillian.”