June 29, 2009

Company Review June 29, 1930

June 29, 1930 was a Sunday with no Journal to summarize, so again a little editorial commentary. This week I'm going to do an expanded company by company review, based on June company reports. None of this is intended as investment advice - always do your own due diligence before buying anything. Also, floss regularly and call your mother (it's been a while)!

Nevertheless, one of the reasons I'm doing this is to try and get a feel for what kind of companies hold up better in this type of a downturn, so I'm going to sum up my own rough and incomplete thoughts so far. (Note: if you want to look up the items on any particular company, there's a search box on the bottom right of the blog web page).

+ Long, Boring Company By Company Analysis and Summary Follows:

Companies holding up well (defined as earnings up or stable):

Anything food related - this makes some sense to me; presumably the last thing you cut is food. Also, some of these may have benefited from falling commodity prices. Many examples, including Coca Cola, Liquid Carbonic, Canada Dry, A&P, American Ice, American Can, Wrigley, National Dairy, biscuit companies, Economy Grocery, Wesson Oil, McKeesport Tin Plate, City Ice & Fuel, Heinz, ADM.

Utilities - similar to food, also electric was probably still in the growth phase. Examples: American Water Works & Electric, Southern Cal. Edison.

Other basics - similar to food? Scott Paper, Abbott Labs.

Movies - cheap pleasure? Columbia Pictures, Fox, Metro-Goldwyn-Mayer, Paramount, Technicolor.

Cigarettes - ditto? R.J. Reynolds, US Tobacco, American Tobacco.

Shoes - not quite sure why, but it seems pretty consistent. Brown Shoe, Melville Shoe, Florsheim, International Shoe.

High tech” of the day - a little surprising, possibly these were still in the growth phase or could demonstrate business cost savings - IBM, AT&T, Westinghouse, Underwood, retail radios (RCA-Victor).

Restaurant chains - surprising. Childs, Exchange Buffet.

Chemical companies - surprising, possibly benefit from cheaper raw materials? Allied Chemical, Dow Chemical.

Oil - gasoline usage still going up? Richfield, Phillips

Probably a special case, but maybe recession causes more car owners to buy parts: Pines-Winterfront (auto parts).

Companies doing fair to middling (defined as earnings down but not by too much):

Chain and department stores - maybe offered bargain shopping? Sears-Roebuck, Montgomery-Ward, Woolworth, W.T. Grant.

Lower priced cars, particularly Ford.

Probably special cases: Otis Elevator, Douglas Aircraft.

Companies doing poorly (defined as earnings substantially down or losing money):

Airlines (so what else is new): American Airways, Lufthansa.

Luxuries: higher priced cars, Elgin Watch, Atlantic Gulf & West Indies Steamship.

Most commodities - capital intensive, too much capacity. Steel, copper, coal, cotton, rubber, etc.

Freight and trade related: Railroads, truck.

Aircraft - overproduction. Curtiss-Wright

This may start to give a feel for what businesses are affected more. However, even if you are able to figure out the companies less affected by the downturn, this isn't necessarily a license to print money; a couple of interesting items from June:

June 26: Some market observers are distressed by lack of support by “big interests,” as seen in sharp declines for leading stocks on low volume. Stocks have gone down regardless of quality or ability to maintain earnings during downturn.

June 14: Some market writers have advised buying stocks of companies that will have better earnings this year (“depression-proof stocks”). Curiously these stocks have gone down even more than the general market in the recent slump.

This is surprising, particularly for believers in an efficient market - it seems that in a panic stocks may get sold indiscriminately, regardless of how badly the underlying business is affected. Or, as Charlie Munger put it, when the cops raid the brothel, they take all the girls, even the good ones. A few examples of stocks that were hammered even though the business was doing well: Paramount, Technicolor, chain stores. Clearly you can't just blindly go out and buy the stocks.

So, it might be a good idea before buying a company stock to require not only that the business is

(1) resistant to the downturn, but

(2) that the stock market valuation is already really cheap.

And, I'm going to cheat a little and benefit from investor's experience in the full Depression - another requirement that might help is that

(3) the company is unleveraged (depressions can kill leveraged companies in a variety of ways), and valuation is at least partly backed by easily realizable assets, preferably cash.

If all three of these requirements are followed, I personally believe that, as Ben Graham put it, “the results should be quite satisfactory.”


  1. It was told to me that Eastman Kodak never had a layoff during the Depression. The photo industry, supported I suppose by the necessity for wedding pictures, baby pictures and the like, may have been bulletproof. It took digital cameras to slay the dragon.

  2. They also came up with Kodachrome in 1935 (and just terminated this year), which still looks amazing 70+ years later:
    Too bad it wasn't around in 1930 - I'd like to have some color shots to post here.

  3. I spent a career in the photofinishing industry, and the Kodachrome process was/is chemically as unfriendly as processes like early Cibachrome where the dye-bleach would eat through stainless steel tanks. Kodachrome was a beautiful product, and still superior to Ektachrome, but, boy what a nasty process.

  4. Gary -
    Interesting - I wasn't aware it was that nasty.
    Do you know of any color photos of New York from around 1930? The only color photos from then that I've found so far are those in the amazing Albert Kahn Archives of the Planet project, which used the Autochrome process introduced in 1909(!):