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Stock Market Crash

Many would-be investors simply refuse to enter the stock market, because of the risks involved. When asked what they fear most, most respond by saying that they fear a stock market crash. This article tells you more on:

  • What is the role of investment and financial professionals in stock market crash?
  • What are the results of stock market crash?
  • What do you know about the 1929 crash?

Many would-be investors simply refuse to enter the stock market, because of the risks involved. When asked what they fear most, most respond by saying that they fear a stock market crash. They may even refer to the stock market crash of 1987 - or even to the 1929 stock market crash - when justifying their lack of interest in the market. While it is true that crashes can happen, understanding what causes a crash and what the effects are can help set your mind at ease and can help you understand more about investing.

What Happens When The Stock Market Crashes?

A stock market, strangely, really begins to crash years before the actual market downturn. When the market is peaking and investors are buying and making profits, the market is commonly known as a bull market. However, as many economists point out, strong economic times are often followed by bad times. Whenever the stock market surges and profits are good, economic downturn eventually happens.

Sometimes, stock markets crash because of a specific economic or political situation. For example, in 2002, the famous Enron scandal shook investor confidence and caused a downturn in the market. More often, however, crashes are caused by nothing more than panic.

What we say that a market crashes, what we mean is that the value of stocks drops dramatically across the board. Rather than just one corporation being affected, the stocks of many or all corporations fall dramatically. This, in turn, causes investor panic and many people rush to sell their stocks. The more people try to sell their stocks lower stock value falls, making the problem worse.

Who Is Involved In A Stock Market Crash?

Many people are involved in a stock market downturn. At the base level, it is shareholders or those who own stocks who are most involved. In many cases, it is investors themselves can contribute to a crash. Investors may borrow money to buy stocks or may invest in stocks without thoroughly understanding the stock market. Investors who are not disciplined and who do not understand the market may be among the first panic and try to sell their stock, pushing a temporary downturn into an actual crash.

More significantly, however, investors are often part of speculation. This means that they buy stock in the hopes that it will increase in profit. When some sort of economic news seems to suggest that they will lose money, again, they often rush to sell their stock, driving stock prices down.Companies selling stock are also involved in the stock market crash. As their stock values drop, many companies will tighten their belts and reduce spending. Often, this can lead to job cuts and other types of cutbacks which can affect the economy overall and can reduce customer and investor confidence.

Investments and finance professionals also involved in a crash. They're the ones that not only report the incidents to the media and explain it to reporters, but they are also the ones that people often turn to when their stocks fall.

Who Is Affected By A Crash?

In short, everyone is affected by a crash. When the stock market takes a downturn, job loss, slow GDP growth, slow economic growth, and devastated consumer confidence are often the results. Investors and companies are making less money, companies are closing, and therefore people are buying less. This affects virtually every aspect of the economy and causes overall economic depression. Since the crash often follows a bull market, many people are panicked by the sudden economic downturn and may become even more cautious with their money, which can further hinder financial growth.

What was the 1929 Crash?

When it comes to the stock market crash, 1929 is a key year. That is the year when a formerly bull market crashed dramatically and began an economic depression that lasted many years. The crash began on what is known as Black Thursday, October 24, 1929. On this day, the Dow Jones Industrial Average dropped a total of 50%. It is from this day that the Great Depression is often dated. Overall, the 1930s saw the Dow Jones Industrial Average drop more than 85%.

Many people were completely financially ruined because they had placed all their investment of trust in the market. People were turned out of their homes and unable to find work. Jobs were scarce, banks were closed, companies failed. Many unemployed men took to riding the rails or traveling illegally by train in order to find or simply beg work. To make matters worse, poorer weather conditions affected the harvest for several years, increasing suffering. It was not until the United States entered World War II that the economy improved dramatically again.

Related Resources:

Can You Protect Yourself on the Stock Market


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