Secrets of the Stock Market's Biggest Winners
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The crash followed an asset bubble. Since 1922, the stock market had gone up by almost 20 percent a year. Everyone invested, thanks to a financial invention called buying "on margin." It allowed people to borrow money from their broker to buy stocks. They only needed to put down 10-20 percent. Investing this way contributed to the irrational exuberance of the Roaring Twenties.
There is no numerically specific definition of a stock market crash but the term commonly applies to steep double-digit percentage losses in a stock market index over a period of several days. Crashes are often distinguished from bear markets by panic selling and abrupt, dramatic price declines. Bear markets are periods of declining stock market prices that are measured in months or years. Crashes are often associated with bear markets, however, they do not necessarily go hand in hand. The crash of 1987, for example, did not lead to a bear market. Likewise, the Japanese bear market of the 1990s occurred over several years without any notable crashes.

What Happens When the Stock Market Crashes?


From October 6–10 the Dow Jones Industrial Average (DJIA) closed lower in all five sessions. Volume levels were record-breaking. The DJIA fell over 1,874 points, or 18%, in its worst weekly decline ever on both a points and percentage basis. The S&P 500 fell more than 20%.[36] The week also set 3 top ten NYSE Group Volume Records with October 8 at #5, October 9 at #10, and October 10 at #1.[37]
Meanwhile, those who are most concerned with corporate coffers, the chief financial officers (CFOs), are the least optimistic about the U.S. economy and, by extension, the stock market. Almost half (48.6%) of CFOs surveyed believe that the U.S. will fall into a recession in 2019, and a whopping 82% of them believe that a recession will occur in 2020. (Source: “Recession Considered Likely By Year-End 2019,” Duke CFO Global Business Outlook, last accessed March 14, 2019.)
By the end of the weekend of November 11, the index stood at 228, a cumulative drop of 40% from the September high. The markets rallied in succeeding months, but it was a temporary recovery that led unsuspecting investors into further losses. The Dow Jones Industrial Average lost 89% of its value before finally bottoming out in July 1932. The crash was followed by the Great Depression, the worst economic crisis of modern times, which plagued the stock market and Wall Street throughout the 1930s.

No definitive conclusions have been reached on the reasons behind the 1987 Crash. Stocks had been in a multi-year bull run and market P/E ratios in the U.S. were above the post-war average. The S&P 500 was trading at 23 times earnings, a postwar high and well above the average of 14.5 times earnings.[29] Herd behavior and psychological feedback loops play a critical part in all stock market crashes but analysts have also tried to look for external triggering events. Aside from the general worries of stock market overvaluation, blame for the collapse has been apportioned to such factors as program trading, portfolio insurance and derivatives, and prior news of worsening economic indicators (i.e. a large U.S. merchandise trade deficit and a falling U.S. dollar, which seemed to imply future interest rate hikes).[30]

What Caused the 29 Stock Market Crash?


By July 8, 1932, the Dow was down to 41.22. That was a 90 percent loss from its record-high close of 381.2 on September 3, 1929. It was the worst bear market in terms of percentage loss in modern U.S. history. The largest one-day percentage gain also occurred during that time. On March 15, 1933, the Dow rose 15.34 percent, a gain of 8.26 points, to close at 62.10.

It’s likely some of these Americans might rethink pulling their money if they knew how quickly a portfolio can rebound from the bottom: The market took just 13 months to recover its losses after the most recent major sell-off in 2015. Even the Great Recession — a devastating downturn of historic proportions — posted a complete market recovery in just over five years. The S&P 500 then posted a compound annual growth rate of 16% from 2013 to 2017 (including dividends).

Can I Buy Chinese Stocks?


Markets can also be stabilized by large entities purchasing massive quantities of stocks, essentially setting an example for individual traders and curbing panic selling. However, these methods are not only unproven, they may not be effective. In one famous example, the Panic of 1907, a 50 percent drop in stocks in New York set off a financial panic that threatened to bring down the financial system. J. P. Morgan, the famous financier and investor, convinced New York bankers to step in and use their personal and institutional capital to shore up markets.
Despite fears of a repeat of the 1930s Depression, the market rallied immediately after the crash, posting a record one-day gain of 102.27 the very next day and 186.64 points on Thursday October 22. It took only two years for the Dow to recover completely; by September 1989, the market had regained all of the value it had lost in the 1987 crash. The Dow Jones Industrial Average gained six-tenths of a percent during the calendar year 1987.
From October 6–10 the Dow Jones Industrial Average (DJIA) closed lower in all five sessions. Volume levels were record-breaking. The DJIA fell over 1,874 points, or 18%, in its worst weekly decline ever on both a points and percentage basis. The S&P 500 fell more than 20%.[36] The week also set 3 top ten NYSE Group Volume Records with October 8 at #5, October 9 at #10, and October 10 at #1.[37]

Consider hiring a fee-only financial advisor to kick the tires on your portfolio and provide an independent perspective on your financial plan. In fact, it’s not uncommon for financial planners to have their own financial planner on their personal payroll for the same reason. An added bonus is knowing there’s someone to call to talk you through the tough times.
Research at the New England Complex Systems Institute has found warning signs of crashes using new statistical analysis tools of complexity theory. This work suggests that the panics that lead to crashes come from increased mimicry in the market. A dramatic increase in market mimicry occurred during the whole year before each market crash of the past 25 years, including the recent financial crisis. When investors closely follow each other's cues, it is easier for panic to take hold and affect the market. This work is a mathematical demonstration of a significant advance warning sign of impending market crashes.[19][20]
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