Market Crashes: The Great Depression (1929)
  1. Market Crashes: Introduction
  2. Market Crashes: What are Crashes and Bubbles?
  3. Market Crashes: The Tulip and Bulb Craze
  4. Market Crashes: The South Sea Bubble
  5. Market Crashes: The Florida Real Estate Craze
  6. Market Crashes: The Great Depression (1929)
  7. Market Crashes: The Crash of 1987
  8. Market Crashes: The Asian Crisis
  9. Market Crashes: The Dotcom Crash
  10. Market Crashes: Housing Bubble and Credit Crisis (2007-2009)
  11. Market Crashes: Conclusion

Market Crashes: The Great Depression (1929)

By Andrew Beattie

When: October 21, 24 and 29, 1929

Where: USA

The amount the market declined from peak to bottom: A string of terrible days led to a more than 40% drop in the market from the beginning of September 1929 to the end of October 1929. In fact, the market continued to decline until July 1932 when it bottomed out, down nearly 90% from its 1929 highs.

Synopsis: Despite the Florida crash, Americans were as bullish as ever. The stock market was guaranteed to make everyone rich as the first world war had been won, and industrialization was resulting in previously-unimaginable luxuries. It was a good time to be American.

Since the stock market was believed to be a no-risk, no-brain world where everything went up, many people poured all their savings into it without learning about the system or the underlying companies. With the flood of uneducated investors, the market was ripe for some manipulation and swindling. Investment bankers, brokers, traders, and sometimes owners banded together to manipulate stock prices and get out with gains. They did this by subtly acquiring large chunks of stock between them and trading them between each other for slightly more each time. When the public noticed the progression of price on the ticker tape, everyone would buy the stock. So, the market manipulators would then sell off their overpriced shares for a healthy profit. On and on the cycle went as uneducated investors turned a profit by selling the manipulated, over-priced shares to someone who wanted to have a rising stock.

Behavioral finance shows that the less an investor knows, the easier it is for him or her to be swept up in popular opinion (herd mentality). This behavior is a double-edged sword because the ignorant investors are also easily spooked into panic. Both actions, joining and fleeing, have very little basis in the quality of the news or the quality of the market. Instead, the herd follows the cow that runs the fastest, trampling the market.



During the craze before the Great Depression a number of academics, including Roger Babson, were predicting a crash if things didn't "calm the hell down." Sadly, for every Roger Babson, there were four bull-blinded academics guaranteeing the eternal rapid growth of the American stock market. Although Babson had been predicting the crash for years, the capricious and ignorant investors finally listened. The twelve-year worldwide depression came and ended only with the declaration of war. This stands as the worst financial blow to the USA ever. The crash itself, though large in its own right, was nothing compared to the ensuing graveyard market and devastating depression.

Market Crashes: The Crash of 1987

  1. Market Crashes: Introduction
  2. Market Crashes: What are Crashes and Bubbles?
  3. Market Crashes: The Tulip and Bulb Craze
  4. Market Crashes: The South Sea Bubble
  5. Market Crashes: The Florida Real Estate Craze
  6. Market Crashes: The Great Depression (1929)
  7. Market Crashes: The Crash of 1987
  8. Market Crashes: The Asian Crisis
  9. Market Crashes: The Dotcom Crash
  10. Market Crashes: Housing Bubble and Credit Crisis (2007-2009)
  11. Market Crashes: Conclusion
RELATED TERMS
  1. Crash

    A sudden and significant decline in the value of a market. A ...
  2. Great Depression

    An economic recession that began on October 29, 1929, following ...
  3. Manipulation

    The act of artificially inflating or deflating the price of a ...
  4. Depression

    A severe and prolonged downturn in economic activity. In economics, ...
  5. High Close

    A tactic used by stock manipulators; they make small trades at ...
  6. Stock Market Crash Of 1929

    A severe downturn in equity prices that occurred in October of ...
RELATED FAQS
  1. How do investors lose money when the stock market crashes?

    Over the last hundred years, there have been several large stock market crashes that have plagued the American financial ... Read Answer >>
  2. What caused the stock market crash of 1929 that preceded The Great Depression?

    Find out what led to the stock market crash of 1929, which in turn led to the Great Depression. It sparked a nearly 90% loss ... Read Answer >>
  3. What caused Black Monday, the stock market crash of 1987?

    Find out about the factors behind the stock market crash of 1987, also known as Black Monday, when the Dow Jones Industrial ... Read Answer >>
  4. What is Black Monday?

    Monday October 19,1987, is known as Black Monday. On that day, stockbrokers in New York, London, Hong Kong, Berlin, Tokyo ... Read Answer >>
  5. How does the performance of the stock market affect individual businesses?

    Learn how stock markets affect individual businesses by influencing consumer spending levels and affecting the way companies ... Read Answer >>
  6. Do traders, market makers, specialists or others ever deliberately drive a stock's ...

    Many individual investors have had the experience of closing their position in a stock only to see the price rebound moments ... Read Answer >>

You May Also Like

Trading Center