Photo: Harris & Ewing collection, Library of Congress (Wikimedia Commons)

This Week in Trading History: The Babson Break

This week in trading history Roger Babson gave a premonition that sent Wall Street into a frenzy, Vanguard released the First Index Investment Trust, and Ruble-ruined Long Term Capital Management finally had to face up to their investors...

31st August

Vanguard announced the first retail index mutual fund, the Vanguard First Index Investment Trust. The fund started out with $11.3m, but the assets grew at a compounded annual growth rate of 53% over the following 20-years. In January 2020, Vanguard's total AUM was $6.2tn.

Diana the Princess of Wales was killed in a car crash in Paris.

If you have read the previous week’s Trading History, you’ll know that at this time the Russian economy was in a dire state and had recently defaulted on their debts. Long Term Capital Management was one of those most badly hit, and on this day the firm’s total losses were $1.9bn, a 45% drop for the month.

1st September

Struggling Mexico on this day decides to devalue the peso by 50% overnight. The Peso went from 8 cents to 4.9 cents against the U.S. dollar. Although this wasn’t the bottom for the Peso.

2nd September

The U.S Treasury Department was established and passed into law. Alexander Hamilton was the first Secretary of Treasury and William Duer became his assistant secretary. Although Duer thought he was finally in the big money by being in this position (and for a while he was), he couldn’t hide from the panic of 1792 that completely wiped him out. He spent the rest of his life in debtors prison.

Vietnam president Ho Chi Minh died on this day. Investors on Wall Street engaged in precautionary trading and the Dow dropped by 10.37 points. Ho Chi Minh was a favoured figure that aimed to lead his people to independence, his death left reason to believe that it would impinge on the peace he had created. Their fears were affirmed as the war went on and took a heavy toll on the U.S. economy.

Long Term Capital Management sent out their fatal letter on this day. John Meriwether, head of the company, sent a letter to his investors explaining that the fund had lost $2.5bn, or 52% of its value in that year. $2.1bn of those losses were in August, it was then a speedy demise for the firm.

3rd September

Sir Malcom Campbell broke the world record on the Bonneville Salt Flats of Utah by driving over 300mph in a 2,500 HP Bluebird. In 2018 Dave Spangler broke the record hitting 482.646 mph in a car called Turbinator II.

1995 was founded, the website held online auctions for miscellaneous items. The first item sold was... a broken laser printer for $14. In 1997, AuctionWeb was renamed eBay. In January 2020, eBay had 1.3bn listings on their site and had an annual revenue of around $10.75bn.

4th September

The last of the Ford Thunderbird is made. The Thunderbird was first introduced in 1954 and was a huge favourite of automobile lovers, it was one of the first personal luxury cards on the market.

5th September

On this day financial advisor Roger Babson was quoted on the Dow Jones Financial News tape saying, “I repeat what I said at this time last year and the year before, that sooner or later a crash is coming.” This announcement was enough to unease traders and by the end of the day there was an all-round drop in stocks that would then become know as the “Babson Break”. This was the first of many stock market declines, kickstarting the Great Depression.

6th September

President William McKinley was shot. Leon Czolgosz, an anarchist who had become radicalised after losing his job during the 1893 panic, shot McKinley at the Pan-American Exposition in Buffalo. Theodore Roosevelt succeeded him. The stock market dropped by 4.43% the next day and continued to drop by 10% over the following weeks.