During our many walks together, my father and I often compared his experiences in the 1920s and ’30s with mine in more recent decades.
Each time brought new revelations. But we rarely missed the obvious fact that history repeats itself in strange ways.
His experiences with the world’s leading gold mines in the early 1930s are a classic example.
Their shares were downtrodden, misunderstood and undervalued, much as they are today.
And what’s especially intriguing is that Dad was one of the only gold stock analysts on Wall Street. He told his clients to buy mining shares with both hands. And they did.
Then, right in the midst of the nation’s worst depression, select mining shares surprised nearly everyone.
They bust out of their doldrums.
They surged to their highest levels in history.
And they made Dad’s clients very wealthy.
Today, Money and Markets’ Larry Edelson tells us that a new group of select mining companies is about to repeat that performance.
How Mining Shares Made a Small
Group of Investors Rich in the 1930s
by Irving Weiss (1908-1997)
I’ve heard several modern-day advisors claim that they are the “original gold bugs.”
But it’s not true. The first gold bugs of the twentieth century were friends of mine — men like Bernard Baruch, William Baxter, Thomas Bragg, and Ben Smith.
Bernard Baruch was an advisor to several presidents and is famous for having made a fortune during the crash.
William Baxter was the founder of the International Economic Research Bureau.
Tom Bragg and Ben Smith were floor traders, specializing in gold stocks.
I was working for a Wall Street firm at the time, while writing freelance reports on gold, silver and mining shares for Baxter.
The five of us had been accumulating gold coins. In those days, very few people were buying the gold pieces. The coins were being used mostly for gifts and weren’t circulating. But we bought thousands of them.
For over a hundred years, the price of gold was steady at around $20 per ounce. So no one viewed it as an investment, as something that might go up or down in value.
At the same time most people still believed in banks. It was assumed that, if your money was in a bank, especially a large, well-known bank, it was safe no matter what.
I told everyone to get all their money
out of the banks. But I had a hard time
convincing people, even my best friends!
Mrs. Wallman, my best friend’s mother, was a case in point.
In 1932, she asked me what she should do with her money. She had it in the Bank of the United States, which, according to my analysis at the time, was very weak. So I told her to take it out and put it in $20 gold coins.
The next day, she went to the bank to withdraw her money. But the teller called over the vice-president, who then proceeded to talk her out of it.
“Look,” he said, pointing to the others in the bank lobby. “Do you see any of these people taking their money out? You’re the only one!”
She put every dime back in.
Several weeks later, FDR declared a national bank holiday. The Bank of the United States never reopened. Mrs. Wallman’s life savings was frozen for years, with no interest. She never did buy the gold coins.
But we did. We were able to buy gold coins for ourselves and for our clients. We’d walk up to the bank tellers and ask for $20 gold pieces. They’d give us as many as we wanted, no questions asked. It was just like asking for $20 bills.
Then we started buying the gold shares —
this time, investing in bigger amounts.
The mining shares were grossly undervalued and consistently snubbed by most traders. In fact, back in the early ’30s, my boss used to laugh at me for buying gold shares. Every morning, he’d rib me about it.
Gold and gold shares had a bad reputation. Earlier in the century, a bunch of shady characters used to roam the countryside peddling the shares in mining ventures that went belly up. So by the 1930s, investors gave mining companies a wide berth.
But we didn’t give a darn about what other people thought or said. We figured we couldn’t go wrong if we concentrated on the biggest companies like Homestake plus a couple of Canadian companies. We knew we were on the right track because our gold stocks started to move up nicely.
We soon had very respectable paper profits. So some of the boys were itching to get out. With the ’29 stock market crash still fresh in their memories, you couldn’t blame them for being nervous.
I called a meeting at Bill Baxter’s office. Bernard Baruch was there, and so were Ben Smith and Tom Bragg.
One of them alluded to the possibility of “some big selling which could hit at almost any time.” Baruch said he was hanging on. He knew something we didn’t. But we didn’t find that out until later.
Our immediate question was: “Who’s going to do the selling and how much?”
I suggested we get the facts with a survey. I got a hold of the stockholder lists of some of the big mining companies and had our staff call about 400 people at random, asking a simple series of questions — “When did you buy your gold shares?” “How much do you own?” “What do you plan to do with them?”
Boy, were we surprised when we saw the results — we never got past the second question!
About half the stockholders in mining companies didn’t even know they owned the shares. The rest said they had the shares stashed away — in their attic or in a vault somewhere. None of the people had plans to sell the shares.
So I called another meeting and told the boys: “The only big source of selling would have to be from someone right here in this room.”
They all breathed a sigh of relief. We held on to our shares and doubled our profits.
This story drives home the basic principle that information about the market is one of the most valuable resources you can get, especially if it’s from an original source. And this concept leads me to the real reason Bernard Baruch wasn’t selling his gold shares.
We gathered from Bernard Baruch that FDR might have a plan up his sleeve to stop gold from leaving the country. But we never imagined he’d confiscate the yellow metal.
The banks were shipping gold out to London by the boatload, and Baruch was doing the same.
He was advising FDR at the time and so he was privy to some information. He couldn’t tell us what it was. But based on logic and the bits and pieces Baruch did talk about, we surmised that the President was going to restrict gold investments in some way.
We bought as much as we could, while we still could — gold coins, shares, bullion, you name it. Then FDR announced one of the landmark financial events of the century: The confiscation of gold.
We were ready. But we were also stunned. We had no idea FDR was going to be that tough.
Homestake went from $65 to $470!
Dome Mines surged from $6 to $61!
Most investors have no idea how huge the profits were in gold shares in the 1930s.
Homestake, for instance, went from a bottom of $65 per share after the crash to $130 and change in 1931.
From there, it doubled again to more than $350 a share by 1933. By the time it peaked in 1936, it had climbed to $540 a share — an astronomical gain of more than $470 per share. That was a 7-fold increase.
In the meantime, Homestake’s dividends also doubled, redoubled, and doubled again — reaching $56 per share in 1935. Think about it. The dividends earned in one year alone almost paid back the entire purchase price of the stock.
|Click for larger version|
Homestake was not an isolated example. Dome, another great gold producer, did even better. You could have bought Dome for as little as $6 a share after the crash. But in the next seven years, it paid $16.60 in dividends. The dividends alone were equal to more than 2 1/2 times the cost of the stock.
Meanwhile, the price of Dome rose to $61 a share. A person who put $10,000 into Dome could have walked away with more than $100,000 — while nearly everything else remained depressed.
(Note: In 1938, the stock split two for one. So subsequent stock charts showed the price rising from $3 per share in 1929 to a high of $34 7/8 in 1938.)
Tom Bragg reaped the biggest benefit. He was the largest holder of Newmont Mining. Then he left Wall Street to become a major executive in the company and stayed with gold for the big rise in subsequent years.
The others made big profits also. I’m not sure how big because they were very private individuals. They never boasted about how much they were making — especially when they were making a big killing.
Cash was king back then. This was the Great Depression. Prices of everything were extraordinarily cheap. You just needed a modest portion of that to build real wealth. It didn’t pay to get greedy.
You could have parlayed $4,000 of silver into $1.1 million —
just by putting some in your trunk and forgetting it there.
Silver was also a great way to build wealth.
I’ll never forget the day I first got interested in silver in 1936. My boss, Bill Baxter, and I were riding the subway home one evening. I had to raise my voice over the deafening clatter of the uptown express to get my point across.
I shouted, “Silver is undervalued. I’m writing a special report on it.” It took me a few times to be heard over the noise, and all he said back was “OK!”
Back then, silver was selling for a meager 17 cents per ounce. But I knew that industrial demand was about to take off.
When I finished the report a couple of months later, Baxter decided the arguments were so strong that we should release the report to our best clients and subscribers before making it available to the general public.
The very first person we called was Joe Kennedy, the father of JFK. Kennedy really liked the idea, but later, he decided to beg off because his advisors told him it was too much of a “long shot.” The man was wealthy enough as it was, but this wound up costing him another fortune.
I bought silver at around 17 cents, but I didn’t ride it up to $50. I wish I had. I got out of silver in the 1950s, having multiplied my money several times over. I thought I was smart to take a profit like that. If I had stashed away a few dozen bars in a trunk and thrown away the key, I’d have made more money than I did with all my other silver trades — large and small — put together.
I calculated that, at 17 cents an ounce, if you invested $4,000, you could have purchased about twenty-two 1,000-ounce silver bars. Each one of them would have been worth $50,000 at the peak, or about $1.1 million for the lot.
But back then, if you told me silver would go to $50 an ounce, I would have said you were nuts. It just goes to prove, again, that no one can possibly predict ahead of time the ultimate peak — or the ultimate bottom — be it in a commodity, a stock, or interest rates.
Kennedy’s experience is also something you should never forget.
He himself wanted to buy silver. He was convinced. But it was too much to convince his advisors, and he missed a great opportunity. To protect your wealth or to make real money, you have to be your own decision-maker. You have to be willing to ignore what everyone else is saying.
Listen to their facts and opinions. Then draw your own conclusions — and once you’ve done that, don’t look back.
The more you know, the better. But the more you rely on others to agree with you, the more likely it is you’re going to miss your best opportunities … because those always come when just about everyone else thinks it’s “a long shot.” If you ever find yourself in a majority, watch out. The market is too small for a crowd.
Back to the present …
Martin here again. I trust you found Dad’s story compelling. But the key now is to apply it to today’s world, keeping in mind the three critical differences between then and now:
Critical difference #1. Believe it or not, the fabulous surge in gold mining shares during of the 1930s took place despite deflation.
Today, we have no deflation. More importantly, the Fed is printing so much money so consistently, it’s hard to imagine a future scenario without inflation.
Critical difference #2. In my father’s time, there were few liquid stocks available for investing in gold or gold mines. You could buy only a small handful of gold mines traded on the New York Stock Exchange. But that was it.
Today, there are many actively traded mining stocks all over the world. Even many of the mid-cap and small-cap mining stocks enjoy better trading volume than the largest mining stocks of the 1930s.
Critical difference #3. In the old days, there were also no gold and silver ETFs — let alone leveraged and inverse ETFs. Today, in contrast, you can buy ETFs on both bullion and mining shares.
The key is WHEN to buy!
So many other so-called “gold experts” have recommended buying prematurely in the last two years, countless investors who have followed their advice are now financially exhausted, personally disgusted, or both.
Larry Edelson is the only one we know who has consistently and persistently said “NO! DON’T BUY YET. WAIT FOR THE REAL BOTTOM!”
So the key questions of our time are:
Precisely WHEN will that real bottom be? Is it now? Is it soon?
And realistically speaking, how sure can we be?
Good luck and God bless!