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Stock Market Crash of 1929 and The Lessons You Must Learn

Whenever there is mention of a stock market crash, it is hard not to discuss the stock market crash of 1929.

It is undeniably one of the marquee events in the economic history of the modern world.

In fact, the 1929 stock market crash was the key event that pretty much changed the roadmap of stock market transactions.

In many ways, it unveiled a new chapter in the trading tradition in not just United States but the world over.

Often the stock market crash of 1929 is linked to over-valuation of stocks, stretched margins and an overall euphoric market situation.

The consensus seems to suggest that the markets were overbought when the crash happened in 1929.

After this big market crash, a great depression happened.

Since that time, the economists are talking about it as one of the most famous events in the economy history.

In this great depression, the Dow Jones Industrial Average lost 25% of its value in 4 days.

This market loss became close to $30 billion

The value was equivalent to the total cost incurred during World War I.

These numbers can give you the clue about the huge losses of this potent market crash.

In fact, the 1929 stock market crash was the worst in the stock market history.

What made the crash even more striking was the depression that started soon after.

The US economy experienced a severe depression period in 1929, after the crash occurred.

It was the worst depression as well.

The impact of this massive stock market crash was felt for more than five years.

In fact, the US markets could not revive to those levels till about the 1950s.

That makes us wonder what the triggers of this massive stock market crash of 1929 were.

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Why Should We Care About the 1929 Stock Market Crash?

A close study of the triggers can bring to focus the actual factors that further exacerbated the extent of the 1929 fall.

However, the question is why should we learn about the 1929 stock market crash and the similar market crashes and their reasons?

We have to do it because there are some important concerns here:

  1. What if something similar happens again?
  2. Are we doomed to be affected by it anyway and there is no way for us to stay away from it?
  3. Are there any strategies that we can follow to stay away from the disasters like the 1929 or 2008 stock market crash?
  4. Is there any safer way for us to invest and increase our wealth?

When the crashes like this happen, they affect everything and everybody.

However, there are some good and easy ways not to lose everything during these kinds of markets collapses.

You can even not to be affected at all if you know how to make money and invest your money.

This is the main reason of writing this article.

First, I am going to explain why the 1929 stock market crash happened.

Then, I am going to explain about the simple strategies that you can follow to stay at the safe side always.

So please keep reading and make sure to read the last part of this article.

What Is the 1929 Stock Market Crash?

The 1929 stock market crash is the biggest crash in the history of stock trading, investment and economy.

Indeed, this stock market crash began on October 24, 1929.

Eventually, this came to be called as the Black Thursday.

The sheer volume and multitude of the fall were huge, and this overwhelmed the investors.

There was all round panic in the market.

Sorrow, anger and confusion ruled.

Investors were at a loss, the bloodbath in the markets saw no end.

The markets opened at 305.85 on that fateful Thursday, and within minutes, the stocks slumped 11%.

Trading was 3x the average volume, and the onslaught of the bear was hard to contain.

Nothing seemed to help or contain the crash.

The slump had the ferocity of water gushing downstream.

Just about nothing seemed strong enough to contain the crash.

Bankers bought stocks feverishly to contain the correction.

For the moment at least there was some respite.

The Dow Ended the Day down 2%

On Friday as well, this positive spirit seemed to continue, but a short trading session on the following Saturday completely wiped out any reminiscence of that gain.

Then came the Black Monday and Black Tuesday.

The correction intensified further.

Almost every sector was bleeding and screaming correction.

Just about every element in the market seemed to wipe off any signs of gain.

It nosedived 13% on Black Monday, and the following Black Tuesday saw an additional 12% fall.

There was just no place to hide on Wall Street.

The bear run was complete and comprehensive.

The bulls were nowhere to be found.

It is obvious that a stock market crash of this magnitude completely overwhelmed the investors.

There were under the spell of a panic attack, completely confused and did not know what to do.

Close to 16,410,310 shares were sold in this period.

What Triggered the 1929 Stock Market Crash?

But that was a mere description of the saga that unfolded over the 4 days of the stock market crash.

The bigger question still remains unanswered, what caused the stock market crash 1929?

If we scan through the newspaper clippings and various journals of that period, you would feel it was the handiwork of the margin sellers.

Panic- margin calls- short selling made a heady and potent mix and led to the drastic and severe slump on Wall Street.

But if you ask me, that is only the tip of an iceberg.

It is still more of details about what happened that day and how it impacted trading action after that.

But the reality goes deeper.

If you ask me, my biggest question is what triggered the huge 11% drop on Black Thursday.

In many ways, that is where the entire saga began.

This is where the bubble started unraveling.

It was an end of the euphoric run that gripped Wall Street thus far.

A big chunk of the foreign investors was already out of the market.

20% Below Their September 3 Highs

The markets were already 20% below their September 3 highs and investors worried that more was still to come.

There was no guarantee how long the bloodbath might continue.

What added to the mayhem was the speculation that preceded the 1929 stock market crash.

Stock prices had reached overvalued zone, prices were trading many times above fair value zone, and the overall price of the securities was stretched many times.

Finally, the euphoria reached its eventual end, the speculation could not sustain beyond a level, and the bubble burst with a bang.

The Dow slumped, and the selling wave on Wall Street continued to overwhelm sellers.

Even the defensives finally started giving in.

There was absolutely no place for investors and traders.

Whether you were a long-term investor or day-trader, there wasn’t a single avenue left for market players to rest in.

Another major trigger for the severe downward spiral was the heavy liquidation that accompanied the selloff.

After all, a major bubble spread across asset classes had come crashing to the ground.

Starting 1922 the stocks were continuously on the way up.

They bypassed logic, rationale and valuation.

Pure investor greed was driving the markets up 20% every year.

No one questioned this huge upmove.

People took the advances in the market almost for granted.

And finally, it all crumbled to practically nothing on the fateful Black Thursday.

The Margin Buying Cookie Comes Crumbling

One of the biggest reasons that this asset bubble crumbled was the widespread participation in the market.

Almost everyone you knew had invested in the market.

Whether or not you had the money, you could buy on the margin.

People could borrow money and invest on the margin.

Brokers were more than ready to loan you at 10-20% margin.

Given the rate at which the market was progressing, everyone wanted to own a piece of the stock market success story.

Just about no one imagined the stock market crash that finally took place in 1929.

The excessively bullish sentiment in the market resulted in the over-valuation of the stocks.

The prices were stretched to a point where even economic factors were not supporting.

Almost around this point, the US economy was just beginning to show signs of fatigue.

It failed to back up the economic challenges in a meaningful manner.

As a result of this, what happened left the world stunned and traumatized by its sheer depth of damage.

The stock market crash 1929 began with the 11% drop in Dow value on Black Thursday.

Initially, though the damage could be contained somewhat, it was only a lull before the storm.

Over the next few days, a downward spiral ensued in the market that promised to remain for a while.

The trading trend had reversed radically.

From a point where there was no stopping the markets at all, there was a point that even the mention of an upmove could send the markets into a tizzy.

The downtrend on the street continued for a long time to come.

The trend saw some spark of a change only in the 1930s, but a complete revival was not seen till the 1950s.

Key Levels to Watch During 1929 Stock Market Crash

In the context of the stock market crash of 1929, there are some key levels to watch out for.

  1. The stock market peaked on September 3, and the Dow hit a high of 381.17
  2. The total extent of loss from the peak to the trough was close to 90%, 89.19% precisely
  3. The maximum extent of the pain was suffered by small and mid caps
  4. Many small and midcap companies declared bankruptcy after this stock market crash
  5. In the aftermath of the devastating stock market crash 1929, many small cap payers were also unlisted from the market
  6. The Dow regained the Sep 3, 1929 level of 381.17 only on November 23, 1954

The 1929 Stock Market Crash & the Great Depression

Every major economic or geopolitical event in the world has had a very distinct impact on the generation that had to live with this.

So if we think about the impact of the stock market crash of 1929 on the average US citizen, a simple word to describe it would be massive.

An entire generation came face to face with the harsh reality of the stock market crash.

Not just the sheer extent of the loss, 89.9%- which is huge anyway, but also the after effects of this severe crisis left everyone completely dumbstruck.

It totally changed their perception about stock markets, investing in stocks and their overall relationship with the stock markets.

From the 1920s, where people would just about do anything to remain invested in markets, the times went through a volte face.

Suddenly stock market trading was not such a great alternative.

Stocks were no longer a hot property.

The economic implications of the stock market crash were perhaps the most damaging one.

Investor sentiment underwent a radical change from optimism and growth to overall gloom and desperation.

While the first half of the 1920s was all about economic growth, low unemployment and excellent business opportunities, the second half completely changed this picture in entirety.

While from the beginning of the 1920s till 1929, the stock prices zoomed up close to 10x, in just a matter of days the losses equaled to 90%.

The Economic Growth Got Impacted As Well

It is needless to add that the economic growth too got impacted in this process.

The economic growth had created a liquidity flush in the early 1920s.

That, no doubt, abetted the cause of speculation and introduction of speculative elements in the overall gameplan.

Everybody was literally invested in the market through margin buying.

The worry was that the ratios of these margin investments.

In several instances, investors were putting down as much as $1 capital forever $3 worth investment in the stocks.

The mathematics is there for you to calculate.

The implications in case of a loss were huge.

But such was the euphoria in the market, no one was even thinking of a possibility where the stocks would begin to correct, forget a crash.

You have to understand that no one at this crucial juncture was buying stocks based on their fundamental appeal.

Blind Investment

They were all buying because they expected prices to go up.

They wanted to just have a share of those gains and profit for it.

The lure of easy money was just too difficult to deny.

But several economic hassles were raising their ugly head at this juncture as well.

The filip that production initiatives got in the first half of the 1920s led to a production spree.

As a result, many industries started reporting over-production by the time 1930s dawned upon the world.

Not just that, oversupply also started creating several other kinds of an economic bottleneck.

The result was that the value of money had suffered significantly.

Easy money also meant that setting up a production unit was no big deal.

All that enterprising business persons had to do was invest in stocks, earn some easy profit and then route that into setting up a business of their own.

The worry was that this over-production started spreading across industries.

Be it steel, iron, manufacturing, agri-products, you name it, and there was an over-supply problem to be dealt with.

What followed was the obvious end.

When Fear Takes the Control

Losses began to unravel.

To make it even worse, share prices too began to retrace their profits somewhat What was particularly worrying was that cash was rather scarce.

Almost every additional penny was being redirected into the markets.

Cash on the sidelines began to dwindle significantly.

As a result, when the need for money arose, the solutions were rather drastic.

Almost the entire portfolios had to be liquidated to address the funding concern.

The scramble for money was overwhelming.

Most individuals were severely stretched.

There was pretty much zero flexibility, and the people were at a certain point of time desperate for the additional cash requirement.

The mounting losses also added a panic element to the confusion and desperation that was already evident in the stock market.

As the Dow continued its downward spiral, the stock market crash of 1929 continued its trail of devastation.

From a high of 381 in September, the Dow dropped down to a paltry 41 mark by the next July.

In terms of sheer percentage losses, this was perhaps the worst bear market in the overall history of the financial market dealings across the United States.

Such was the extent of losses that it took close to 25 years to undo the damage the stock market crash resulted in.

Regulatory Action Post Stock Market Crash

Such was the intensity of the 1929 stock market crash that a probe into it became a necessity.

In 1932 after the downtrend finally bottomed out, the US Government established the Pecora Commission.

It was created with the whole purpose of understanding the reason for the crash.

A close study on the various triggers and the causes of the stock market crash of 1929 were undertaken.

The year after, once the probe was complete, the US Congress passed the famous Glass-Steagall Act.

This was the crucial piece of legislation that made certain banking sector regulation mandatory.

This was the Act that sought to differentiate between investment banks and commercial banks.

In this context, I would like to explain that the commercial banks are essentially the ones that took deposits and extended loans.

The investment banks, on the other hand, were those institutions that are responsible for underwriting securities.

They deal with issuing a whole host of stocks, bonds and securities.

They are often the link between financial markets and the banking operations.

Steps to Stop Panic Sale in Markets

However one of the most lasting outcome of this probe on the stock market crash of 1929 was the steps that Governments across the world decided upon to stop the panic sale.

They globally highlighted the importance of instituting measures to suspend trading during a rapid fall in the market.

Markets across the world wanted protective measures against the potential panic sale that can set in anywhere and anytime.

Most importantly, the 1929 stock market crash brought forth the perils of rapidly declining stock market fall.

However, the fact remains that the one-day 22% Dow fall in 1987 was worse than 25% decline seen across the Dow Jones in 1929.

Though in terms of a single percentage loss this was huge, the overall extent of loss was far contained in 1987.

It is needless to mention that the presence of certain important regulatory measures surely enhanced the investor safety.

The Plight of the Retail Investor

Another reason why these steps to stop panic sales were important, was the plight of the retail investor.

Whether you consider the case of the 1929 stock market crash or the 2008 Lehman crash, it is invariably the retail investor who gets worst hit.

They are invariably the last to enter, and the first to exit the markets gripped by fear and under the spell of severe losses.

Additionally, they are also invariably the most stretched economically.

They do not have the wherewithal to face a financial calamity of this stature.

They also didn’t have the required understanding to deal with such sensitive phases in the market.

The institution of appropriate regulatory measures would make sure that the retail investor’s interest is well taken care of.

It might not be possible to completely avert the overall chance of a potential financial calamity, but with these regulations, you can surely limit the impact.

Perhaps it is for this reason that while in the case of the 1929 stock market crash, it took the markets 25 years to recoup the lost ground, the gap’s becoming increasingly smaller with every passing decade.

In the case of the 2008 Lehman crisis, the Dow hit fresh highs in less than 10 years of the huge financial tsunami hitting markets globally.

Impact of the 1929 Stock Market Crash

Therefore, it is now time to clearly understand the various implications of the stock market crash of 1929.

Just how did this massive crash and the resulting economic depression impact world markets as a whole and the US markets specifically?

Perhaps it would be an understatement to say that the depression that followed the 1929 stock market crash, literally devastated the US economy.

The economy that was roaring in the earlier half of the 1920s was completely out of gear.

While the first half of the 1920s saw record low unemployment levels, the phase post the stock market crash was an exact opposite.

  1. The unemployment rate was up 25%.
  2. The annual wages slumped over 40%
  3. Economic growth in the United States declined by 50%
  4. Word trade too slumped, it fell by a whopping 65%
  5. Prices declined at an alarming pace of 10% a year
  6. Deflation became the biggest reality that markets had to learn dealing with

1929 Stock Market Crash Impact on Europe

If you thought that the devastating stock market crash of 1929 only impacted the United States market, you are severely wrong.

While global markets were not as closely knit as you see today, but the obvious linkages were there.

At least, Europe decidedly felt the heat of all that happened in the United States.

In fact, the stock market crash and the depression that followed in 1929 was almost single-handedly responsible to bring upon the great depression in Europe as well.

While it would be wrong to assume that there were absolutely no triggers in Europe and everything just crumbled like a pack of cards, the link cannot be denied.

When the Dow started declining, every mature market at that point of time sat up and noticed.

What further exacerbated the crisis that followed the stock market crash was the lack of Government understanding.

Whether you consider the Government of UK or US, none of them could properly fathom the exact extent of the crisis and the economic depression that followed suit.

The meltdown in the economic activity in the United States decidedly had its impact in the United Kingdom and the rest of the European markets too.

In fact, during the 1930s labor problems, strikes and the multitude of unemployment related issues became the order of the day.

People in US and Europe alike felt the heat of a slowing economy and the perils of a challenging economic predicament.

The lack of liquidity was one of the biggest problems to deal with internationally.

The World War II Post the 1929 Stock Market Crash

If ever any war could take the credit for addressing the economic challenges of the world then it’s got to be the World War II.

Can you even imagine that the kind of death and destruction that war brings forth can actually have any positive role in shaping the economic future of the world? Well, the World War II surely had that kind of impact as it shattered global peace close on the heels of the devastating stock market crash of 1929.

The first biggest positive was the American mobilization that helped move over 10 million people from the civilian labor force.

This mobilization that started in 1941 had a rather surprising and extremely dramatic effect on any parts of the US economy.

In many ways, economic experts today feel that the World War II ended the great depression in US and UK lot faster than it otherwise would have.

It was partly due to the World War II.

In that war, the Government’s capital investment in United States jumped to 67% from mere 5% in 1940.

It is, therefore, needless to mention that with so much of capital spending underway, it became far simpler to rescue the US economy from the throes of the terrible depression that gripped it in 1929.

Also, the War and its outcome, helped people divert their attention and efforts to several constructive ventures.

All this capital heavy initiatives undeniably brought forth significant gains and positive triggers for the US economy to get out from the dungeons of depression.

The Greatest Financial Crisis Ever

Therefore, we can easily conclude that the stock market crash of 1929 was one of the greatest financial crisis that hit world markets.

Not just in the extent of damage that it resulted in but also in terms of the implications, it was a marquee moment.

Governments, investors, traders and the general public came face to face with the harsh realities that the stock market crash brought through.

One of the biggest lessons learned from the 1929 stock market crash is undeniably the role of valuations.

Don’t cloud your investment decision with any other pre-condition and never let euphoria drive your investment calls.

Do We Really Have to Lose Our Shirts When the Economic Crisis Like 1929 Happen?

Absolutely not.

Stock market crashes like 1929 can only make problems who don’t follow a strong and safe investment strategy.

First of all, those who invest with the money that they cannot afford to lose, get into serious problems when the markets crash.

The second group who lose their shirts after a market crash, are those who put all their eggs in one basket.

The Markets will always crash according to Robert Kiyosaki:

What Is the Solution?

So here is what you have to do to stay away from losing everything when the markets crash:

1. A Reliable and Strong Source of Income

You have to build and maintain a reliable and strong source of income that makes money for you consistently, no matter what the economy does.

If so, then you will always have your steady stream of income.

Although the disasters like the stock market crash of 1929 can affect everything, there are still lots of businesses that are always at the safe side.

A strong online business which is based on a proven and well-developed system, is such a business.

There was no online business back in 1929, but now we have this option.

There are so many things that people always like and always spend money on, whether the economy is good or not.

Education is one of them, specially the business and money related educations.

People always want to improve their income and lifestyle.

They are always ready to spend money on this.

They spend money to learn how to make more money and have a better life.

Therefore, online business education never dies.

Fortunately, it is now so easy to start and promote an online education business.

Click Here to start your own online business education now.

2. Increase Your Wealth by Following the Proper Investment Plans

Making a lot of money is not enough.

You have to invest the money you make to (1) safeguard your wealth and (2) increase it and be ahead of the inflation.

Investing all the money you make in one market is not a good idea at all.

For example, if you invest all your money in the stock market, then you will be in trouble if a crisis like the stock market crash of 1929 occurs.

You should always choose the markets properly and balance your investment using different markets.

So, here is how you have to invest a portion of your extra income:

  1. Your Own Business:

    If you have a reliable and strong source of income through a business, the way that I explained above, you should always invest a portion of your income in the same business to increase your income month after month.

    This is possible only when your business is scalable. Online businesses like ours are strongly scalable.

  2. Currency and Real Estate Markets:

    You have to invest a significant portion of your extra income in the currency and real estate markets.

    Currency and stock markets support each other if you choose them properly and have a proper investment plan.

    I have explained this in details here: A Short Term Investment Strategy That Makes You a Millionaire

  3. Stock Market:

    Investing in the stock market needs lots of experience and knowledge.

    It is not a piece of cake as some people think.

    Most people buy the shares of a company blindly just because so many others are doing the same.

    These are the people who will lose their shirts in the stock market crashes like 1929 and 2008.

    Therefore, if you don’t know how to do it and you don’t have access to those who are expert enough in this kind of investment, you’d better to save your money.

    It is better to be safe than sorry.

    Besides, there are other good options that can increase your wealth much more than the stock market.

    I’ve explained them above.

  4. Always Save Money:

    Most people think that they have to invest their extra income entirely.

    This is also a big mistake.

    You should always have some liquid asset which is either cash or an asset like gold that you can easily convert to cash.

    The cash that you save in your bank account is the best.

    I don’t agree with having precious metals and stones because you can’t cash them easily when a crisis comes.

    You should always save some money from your extra income every month.

If you follow the above plan, you will always be at the safe side.

At least, when the economic tsunamis like 1929 stock market crash happen, they won’t affect you that much.

You will be able to recover very easily while many others can never get back up.

This is the big lesson that the stock market crash of 1929 has taught us.

We should never forget it.

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“Whether you think you can, or you think you cannot, you are right.” – Henry Ford



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