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The Great Depression was still an extraordinarily painful time with minimal social safety nets, followed closely by World War II. This was a stressful time, and the Dow committee often “sold low” and “bought high” when picking companies to remove and add. That was the highest number of changes to the Dow ever in such a short amount of time. According to this article, a total of 18 companies were swapped in and out of the DJIA between 1929 to 1932. The DJIA is composed of 30 stocks, which are picked by humans to represent the broad market. And because the Consumer Price Index in late 1936 was more than 18 percent lower than it was in the fall of 1929, stating market returns without accounting for deflation exaggerates the decline.” Every dollar actually bought significantly more in 1936 than in 1929. “The Great Depression was a deflationary period. When the Dow hit a low of 41.22 on J(that 90% drop you’ve read about), the dividend yield was close to 14%. The absolute dividend payout did not drop nearly as severely as the prices. Back then, dividend yields were much higher. This came 4.5 years after the Dow hit its period low of 41.22 in the middle of 1932. The truth is that it took about 7 years for an investor to recover (1929-1936), even if they invested all their money at the very peak. a careful analysis of the record shows that the picture is more complex and, ultimately, far less daunting: An investor who invested a lump sum in the average stock at the market’s 1929 high would have been back to a break-even by late 1936 – less than four and a half years after the mid-1932 market low.

However, as this 2009 NY Times article by Mark Hulbert explains, that’s not the whole story when you dig a little deeper. It is also true that the DJIA did not reach that level of 381.17 again until November 23rd, 1954. It’s true that the Dow Jones Industrial Average (DJIA or just “Dow”) peaked at 381.17 on September 3rd, 1929.

I’ve heard it and simply accepted it as truth, until today. You may have heard that it took 25 years for the stock market to recover during the Great Depression. (They have to be anonymous to avoid retribution.) Dan Ariely and the other authors have since retracted the paper and disavowed any prior knowledge of the fake data. Nine years later, a group of anonymous researchers at Data Colada actually looked at the data and found it clearly fudged using copy-and-paste and a random number generator. It since has been cited in more than 400 other academic papers. In 2012, well-known behavioral scientist Dan Ariely published a paper that found that when people signed an honesty declaration at the beginning of a form, rather than the end, they were less likely to lie. Sometimes, it pays to scratch a little beneath the surface.