What is a Depression in Investing?

A depression in investing is a rare but severe and ongoing form of recession.

The most famous economic depression was The Great Depression that followed the stock market crash of October 24, 1929.

The Great Depression lasted for over a decade, and caused unemployment and poverty levels to skyrocket. The U.S. and other governments needlessly deepened and prolonged the Great Depression with poorly thought out legislation that hurt trade and hindered investment.

The mid-1930 Smoot-Hawley tariff act in the U.S. bears a lot of the responsibility for the depth of the 1930s Depression. That’s why we cringe a little every time a U.S. politician says anything that smacks of protectionism. Since then, however, governments have created other programs-such as unemployment insurance, and deposit and mortgage insurance, for instance-that tend to stabilize the economy in a recession.

The 1929/1930 recession spiraled into a long-lasting depression because lots of governments around the world followed economic policies that are now near-universally recognized as guaranteed economic disasters. These include competitive devaluations and hindrances to world trade, which now get a lot of the blame. They also include the rise of fascism in Europe, and President Roosevelt’s heavy-handed attempts to control and dictate to business, and pack the U.S. Supreme Court with additional justices that would stop his legislation from being declared unconstitutional.

All this made business and investors wary of investing in anything that tied their money down. Capital investment dried up and economic activity and employment dried up with it. Few governments are likely to repeat the mistakes of the 1930s, so another depression, and a prolonged bear market is unlikely. At TSI Network we recommend using our three-part Successful Investor strategy:

1. Invest mainly in well-established companies;
2. Spread your money out across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; Consumer; Finance; Utilities);
3. Downplay or avoid stocks in the broker/media limelight.

The most successful investors don’t just “buy and hold,” they “buy and watch closely.” This strategy has been one of the foundations of success for us and our wealth management clients for decades. Download 10 Stocks to Buy and Hold Forever for FREE, right now.