The Wall Street Waltz: 90 Visual Perspectives, Illustrated Lessons From Financial Cycles and Trends, Revised and Updated Edition

Chart 34

Monthly Railroad Prices, 1843–1862

Interested in learning how to avoid a serious problem that may have already cost you big bucks? The big losers in the recent computer stock downturn could have learned two lessons from 19th-century railroad prices—one would have already become a money saver, the other may be key right now. The railroads were the big growth stocks of their day with unquestionable long-term prospects—comparable to today's electronics stocks. But that didn't stop them from plummeting. Speculative booms, like railroads then or electronics of the early 1980s, are usually followed by a severe and, just as important, a long decline.

Background: In 1843, the nation was emerging from a seven-year depression. During the 1830s, unsound banking practices, overly ambitious infrastructure investment (railroads, canals, etc.), and rampant real estate speculation paved the way for the Panic of 1837. Economic devastation followed in a crisis of major proportions. Stocks crashed. Urban food riots erupted. Stores and warehouses were looted, and banks ceased to honor their notes. Many railroads were simply abandoned. By all accounts, it was among the worst economic periods ever, rivaling the 1870s and 1930s.

The Boom: But by 1843 recovery was beginning, along with a renewed interest in stocks—and a spectacular 1843–1844 price rise (note the advance from point A to point B), which resulted from these stocks having been beaten down too low. By 1850 railroad building boomed. ...