A Brief History of The Wall Street Crash of 1929
The Great Crash is perhaps the biggest reason why buy and hold investing should still be questioned. Anyone who bought in the 1920s probably live their whole life before they got their money back again. Not exactly a long term retirement plan. So what exactly set up this horrendous crash?
The biggest reason for the large crash was the speculative borrowing. Many average people were borrowing up to 2/3 (margin limits not allowed today) to get into the stock market. Each wave the stock prices got higher which enticed more people to borrow money and jump in on the easy money. Over 8.5 billion dollars was borrowed money invested in stocks. This was more than all of the currency in the US at the time. With P/E ratios over 30 (which may be fine if you’re a gambler for high flying tech stocks, but not steady blue chips) these valuations were not stable. Eventually people would take their gains and there wouldn’t be money available to prop the prices up. When everyone is already invested there is no one left to buy.
The month’s prior to the Great Crash were already choppy with large falls and recoveries. Many meetings were happening in an attempt to stabilize the market, but they wouldn’t come fast enough (if anything could have been done to help anyways.) On October 28th, 1929 (the first Black Monday) 13% of the stock market was lost. The next day another 12% was lost despite the Rockerfellers buying large lots of stock to prove to the public their confidence.
This is nothing that won’t happen again. We are just prone to bubbles as a society. We’ve had tech bubbles, real estate bubbles, commodity bubbles, bond bubbles, credit bubbles, and who knows what’s next. Just learn stock market history so you won’t be surprised as it’s happening and can protect your investments.
Tags: learn stock market, protect your investments, Stock Market, stock market crash
