Understanding The Dangers Of A Stock Market Crash

Definition: The stock market crash of 1929 was the worst crash in U.S. history. Between 1920 – 1930 and 1990 – 2000 there have been huge amount of stock splits that impacted the price-earnings ratio positively. Even by assuming that the average price of a stock on NYSE is only $10 per share it will give us more the 1.3 trillion of negative money flow (out of the market). Over the four days of the stock market crash , the Dow dropped 25%, losing $30 billion in market value. Short-term vs. long-term: While much of the focus has been on market fluctuations in the last year, investing for retirement security is (or should be) a long-term proposition. The market is made up of minds of many men and when you put all these men together, everyone has their own views and outlook which could mislead your initial thought process.Stock Market Crash

The market was in an upward trend in the 1920’s and investments in shares were on the increase. This phase can be recognized by the saturation of the stock market and the increasing competition. As with many market reversals, the causes are numerous, intertwined, and controversial.

By Friday, the situation was so out of control that the decision was made to close down the stock market. Eventually dreams and reality have to be reconciled, and that means some kind of crash. Though the market ended on a positive note on Thursday, there was still some panic among the people. The value of the shares is strengthened further by stock splits and as icing on the cake this value of the shares was enlarged again in the Dow Jones Index, because behind the scenes the formula of the Dow Jones was adjusted due to stock splits.Stock Market Crash

Unfortunately for them, beginning in September 1929, the stock market began to decline in value as larger investors realized that the stocks were inflated in price. When it happened depends on the current political and economical factors affecting the stock market and how fast the investor could be reassured in the coming stability. Prior to the Great Stock Market Crash, the United States was enjoying a sustained period of economic growth. Many investors became convinced that stocks were a sure thing and borrowed heavily to invest more money in the market. The government decided to take preventive measures for the future to avoid a recurrence of a similar crash. Some countries put a temporary halt to their stock market trading because of this global financial crisis. This was short lived and it crashed again entering a bear market and reaching its lowest point in July of 1932. Many companies and banks also turned to the stock markets for their investments.

When enough sellers offload a stock because of their own fear of loss based on something they’ve heard, it will cause the price of that stock to drop. Based upon the idea that a cooling off period would help dissipate investor panic, these mandatory market shutdowns are triggered whenever a large pre-defined market decline occurs during the trading day. Bear markets are periods of declining stock market prices that are measured in months or years. The mechanism works by means of central banks buying bonds in the stock market or directly from banks.Stock Market Crash