# The Great Depression - Benjamin Roth
## Reasonable Returns (The Great Depression - Benjamin Roth)
"This morning a client 65 years of age came into the office and we had a long talk about his personal affairs. He had been in the liquor business and in 1921 when Prohibition put an end to his activity he had accumulated about $200,000 in liquid cash.
He is now broke except for some worthless real estate. He became a prey to high pressure salesmen of worthless stocks, tried one business after the other, speculated in real estate and in many ways tried to make more money quickly. We discussed 7 or 8 other men to whom the same thing happened. Not one was able to hold his money. They were good saloonkeepers but had not learned how to keep their money or investments and were not satisfied with a moderate return of 4% or 5%.
I asked him what he would do again in the same circumstances. With tears in his eyes he said he would preserve and protect the principal at all hazards. He would invest safely for a small but certain return. On $8,000 a year, he could have lived well in Youngstown and he and his family would have had the peace of mind that financial security can bring."
"Safety of the principal is the first necessity. Only a fair return on the investment can be expected. To seek a high or unusual return means great risk."
## Boom and Bust Cycles (The Great Depression - Benjamin Roth)
"As nearly as I can make out from a study of past panics, the cycle of business is always moving down toward a panic or up toward a boom. It rarely for long travels in a straight line."
"Again and again I am forced to the conclusion that in prosperous times a man must be cautious and preserve his capital and be careful not to over-expand his business or go too deeply in debt relying on a continuation of good business to pay the debt. In time of depression a man can be brave and if the depression is nearing an end he can invest his money or expand his business with confidence that he is facing 5 or 10 years of prosperity."
"Every panic is brought on by human greed and speculation instead of by complex economic cycles. Reasoning follows:
- After a depression comes a slow return to normal.
- A few years of normal business, men get too optimistic and begin to over expand, speculate, etc.
- Speculation leads to fraudulent stock issues, embezzlement, new theories such as new era.
- Then comes the crash or panic caused by over-expansion, fraud, embezzlement, and human greed."
"You will be told that this new depression is different because of government control, etc. but as long as human nature is the same and people like to speculate, it is probable that in the future, economic booms and depressions will come and go as in the past. I have little faith that government can eliminate or control the economic cycle. I do not believe a managed economy will work."
## How to Invest (The Great Depression - Benjamin Roth)
What is that one thing that leads one man to financial independence and the other to the scrap heap - when both worked hard and both saved the same amount out of their earnings? One has a record which shows he was avaricious and was not satisfied with a fair investment return. His record also shows his investment judgment was bad whether he bought real estate or stocks. He bought vacant lots in poor neighbourhoods that never developed and his equity has disappeared. Other people bought real estate and stocks at the same time and prospered. Most of those who prospered were not avaricious. It is all in the nature of the beast. It is probably just as great a sin to be too conservative as too avaricious. A man who puts his small savings in government bonds at 2.5% may have 10 to 15000 in his old age but he will never be wealthy. Somewhere in between the ultra-conservative man who is afraid to take even a legitimate risk and the avaricious gambler who bets on anything - stands the ideal investor who has learned to make his money work for him. He accumulates money first by savings - then he carefully investigates and weighs a dozen investments before he finally selects one to put his money in. He is willing to take a legitimate risk but is not willing to gamble. If he invests in real estate or mortgages he first examines the property, the neighbourhood, the future development and will probably have it appraised by experts. He investigates thoroughly before he buys. Such a man with ordinary business judgment will usually make a profit on his investment. Not much perhaps on each individual investment but in the end he will accumulate and as the pile grows he will find many bargains offered him because he has capital to invest. If he invests in stocks or bonds he will not follow blind tips or rush into a seething market with thousands of suckers - but in the quiet of his office he will carefully examine the earnings records of the company, its future prospects. He will seek advice if necessary and then buy only if he thinks the price is fair and the prospects good. He will hold on for several years and share in the growth of the company and will sell only if the company loses ground or if a stock-crazy public offers him much more for his stock than its intrinsic value.
If a man can develop investment sense he can build an estate even though his savings from his earnings are small. It takes study and hard work like everything else but the fact remains that money can be wisely invested and can be made to work for you. The reward is well worth trying for but the dangers and pitfalls along the road are many.