Stock Market Crash Lesson from 1929 Stock Market Collapse

Stock market is a good way to make money in short span of time. But, there is a certain amount of risk involved. The risk factor involved in the stock market was not taken very seriously till 1929, when a huge crash happened in this market.

Only after this crash, people started realizing the investment risk factors involved in this. The stock market crash at 1929 is also termed as ‘Great Crash’, ‘Wall Street Crash of 1929’ and ‘Black Tuesday’. It was the most threatening crash in United State’s history.

Money Sense

At the time before this crash happened, United States was at its peak of development. The invention of air planes and radios were boosting the economy of US to a very high level. This is the time where people thought seriously about making money.

Stock markets were providing huge returns and attracted many people. A huge amount of money was prevailing on the stock market. People also never foresee this stock market crash. The total mood of the country was enthusiasm, optimism and confidence.

As lots of people started investing on stock market. the companies also earned nice profit and in turn the price of the stock also started increasing. So, buying and selling had been one of the most preferred methods of trading because this gave high return is short span. Though the period between 1925 and 1927 had ups and downs, 1928 had an increasing price. By this year, the stock boom had begun. The concept of long term investment had disappeared at this time period. Everyone wanted to buy a share and sell it as soon as its price increased.  Stock turned out to be a passion for people. The interest to become rich motivated many people to buy shares.

Not every person had the money to buy shares. To attract more investments the concept of buying on margins was introduced. In this method, a buyer can give only a part of the amount of stock and the rest will be paid by the broker. Even by giving 10 to 20 percent of the amount, buyers started owning shares. The rest 80 to 90 percent was borrowed from the brokers.

If the price of the stock drops down to less than the loan amount, then it is the responsibility of the buyer to pay back the cash immediately.  Despite the risk involved in this method, many people starting getting shares on margin. In fact, people didn’t even think of the risk involved in every investment. simply because every stock was giving assured profit back then.

A mini-crash happened on March 25, 1929 and after some days steel industry, real estate and car manufacturers had a dip in their profit.  Panic aroused among many people and people started selling the share while there was no one to buy the shares.

Many brokers also started sending margin calls. This made a major collapse in the stock market. Stocks became stagnant as there was no one to buy shares. There was serious aftermath of this crash. Many people lost their entire saving and the total economy was devastated.

This crash is always a lesson for the stock traders and the associated companies. This crash will be there in the history forever.