Collection: Mohnish Pabrai - #66 '1921 Motors Bubble'

Updated: Jan 9


Video Link: https://youtu.be/XRBSWCT-6-A


In this episode, Mohnish Pabrai talks about 1921 U.S. Motors Bubble and how it wipe out almost all the investors and entrepreneurs during that time.


In this episode, you’ll learn:

  • 1921 U.S. Motors Bubble.

To check out all Collection: Mohnish Pabrai <click here>

[Transcript]

(Source: https://youtu.be/7F2IGzES7Uc)

MOHNISH PABRAI 00:00

You know, bubbles actually are very common, they are far more common than we think they are.


And they occur in all kinds of different asset classes, they occur in all kinds of different geographies in all kinds of different markets and such at different times. They kinda staggered all over the place.


And you know, there was a book written by a former news anchor for CNBC Ron Insana. And normally news anchor don't write good book but Ron Insana wrote a book called "Trend Watching" which listed a number of different bubbles.


And if you just go through the book you would see almost all the time, somewhere around the world there is some bubbles in – pretty much in the works or in progress or getting worse and so on. And so they're very common phenomena.


Partially because humans vacillate between fear and greed, and as long as we have humans involved with markets, we going to have bubbles. And so I want to just highlight a few bubbles in the past and also little bit about the present.


So in the early 1920s, early like 1919 to 1922, we had a very major automobile bubble. And it bust in a pretty significant way in 1922. But then the remnants were all taken out in the next nine or ten years.


And so if you looked at the U.S. kind of from a – you know, investor or entrepreneur point of view and you were in the year let's say 1920 or 1921, you know so World War 1 has ended. Lot of the world infrastructure especially in the developed world is destroyed except North America is untouched. Europe is pretty much in flames.


And the U.S. is industrializing, it is the emerging market. And you can clearly see that all the trends are in the right direction, the population is growing, highways and roads are getting built at a very prolific rate and automobile sales are forecasted to grow quite significantly.


I mean if you looked at what actually happened, Let's say between 1921 and 1922, you know Auto sales went up by 50%. And that is you know rivaling what was happening a few years ago in China on Auto sales.


So the U.S. was truly an emerging market and these were the [Inaudible], everything looked like you know, it go nothing but go straight up.


And investors basically, you know had certain perspectives, you know one is they expected that the U.S. population would rise. In 1921, the U.S. population was 109 million and they were absolutely correct that the population grows nonstop for the next 94 years and even now when we are at you know 300-odd million, it's going to continue growing for as far as we can see. Just the way the demographics of the country are.


So they are – they were absolutely right that you had a very long tailwind of population growth. Investors also expected the country would industralize. You know when the United States was formed something like 97-98% of the population was focused on farming. And that number has been continuously coming down and until the Industrial Revolution. And then it was coming down quite radically.


So people could see that the country has industrialized, Autos would grow big time. And they were absolutely right. You know the 1.5 to 2.5 million number, you know now this year we forecasted to have more than 18 million cars sold in the U.S.


So all these things were correct but nearly all the 1921 investors in Autos or Motor companies lost their entire investment. And this was a very major bubble at the time and if you go through some of the next few slides that are coming up.


This is a list of all these different car companies and next to their names is their year of birth and year of death.


So like you know – you have like the Stanley Steamer 1897-1927 or you have this LaFayette from 1919 to 1924, so like that car company lasted five years. And so we had hundreds of Auto manufacturers come up with a variety of wide range of cars and lots of money went into these ventures.


And in the end, [Inaudible] in 1932 we were left with the three major US manufacturers for cars. And almost everyone else was wiped out.


And basically it wasn't just investors, I mean a lot of entrepreneurs bought into these, and a lot of these companies went public and then they went bust after going public. So we had a very significant bubble nearly about a century ago – about 93-94 years ago.

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