The Christmas tree is out on the curb, the ornaments carefully packed away for next year. We recover from the New Year’s party as the fog of it lifts from our heads. Our revels now are ended, as the Bard says. It is time to look ahead to 2009.

Well, let’s just take one last peek at 2008, since the final score card is in. As bad as 2008 was, it was not the worst year on record. The Dow fell 33.8%, securing the third worst spot, behind the 52.7% drop in 1931 and the 37.7% drop of 1907 vintage. As for the S&P 500, which dates only to 1923, it too recorded its third worst year, with a 38.5% drop, just ahead of 1937’s 38.6%. The worst year for the S&P 500 was also 1931 — a 47.1% drop.

But there is always a sunny side…

That’s the way Phil Carret looked at things. Born in 1896, Carret (rhymes with “hurray”) was one of the more inspiring and successful investors of the 20th century. In the pit of the Great Depression — 1932 — Carret decided to start his own mutual fund. Yes, a quarter of the work force was out of work. But that left three-quarters working. And the Dow did lose 52.7% of its value in the prior year, but that meant that 47.3% remained.

Carret’s Pioneer Fund went on to compound shareholder capital at a rate of 13% annually for 50 years, despite slogging through losses in the early going. After he sold it, Carret managed his own money and private accounts. He was the great endurance man of the investing world, its Lou Gehrig or Cal Ripken.

John Rothchild discusses Carret’s exploits in The Bear Book: Survive and Profit in Ferocious Markets. Even at the age of 100, he put in a normal work week. He was a Wall Street marvel. He was 70 before cable TV or personal computers even came along. He was 85 before Microsoft was a public company. He remembered the triumph of Harvard’s undefeated and untied season in 1913, because he was there.

Carret played through all the great booms and busts of the 20th century. He remembered 1929. He remembered how no one saw the Great Depression coming.

He was giving a speech in Rome on the day of the 1987 crash. “They all wanted to know what was going on,” he remembered many years later. “I didn’t know myself. I still don’t know.”

Old Carret was a cool hand to the end, always looking for the bright side. He turned very bearish on stocks in 1997. The Dow was 7,000. Asked if he was selling stocks, Carret said: “I’m not going to do anything about it in my own portfolio. If stocks go down, they go down. I’m 100 years old and due to conk out any minute. If I conk out at the bottom of a bear market, it would save a lot of estate taxes.”

Always looking for the bright side, indeed…

Until next time,
Chris Mayer

January 6, 2009

Chris Mayer

Chris Mayer studied finance at the University of Maryland, graduating magna cum laude. He went on to earn his MBA while embarking on a decade-long career in corporate banking. Chris is the editor of Capital and Crisis and Mayer’s Special Situations, a monthly report that unearths unique and unconventional opportunities in smaller-cap stocks. In 2008, Chris authored Invest Like a Dealmaker: Secrets From a Former Banking Insider.

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