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STOCK MARKET CRASH

AND THE GREAT DEPRESSION


CONTENTS
• CYCLE OF STOCK MARKET
• 5 PHASES OF STOCK MARKET
• INVESTMENT STRATEGIES
• LIST OF 10 WORST STOCK MARKET CRASHES
• THE GREAT DEPRESSION
• CAUSES OF THE GREAT DEPRESSION
• EFFECTS OF THE GREAT DEPRESSION
• END OF THE GREAT DEPRESSION
• PHOTO GALLERY OF THE GREAT DEPRESSION

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CYCLE OF THE MARKET

START START
OF OF
BULL BEAR
MARKET MARKET

WEAK
AND
PESSIMISTIC
MARKET
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PHASE I-SMART MONEY
BUYING
• MONEY IS UNDERVALUED AND
IS A BARGAIN.

• SMART MONEY BUYING CAUSES


STOCKS TO RISE.

• RISING STOCKS GAIN THE


RESPECT OF MUTUAL FUNDS.

• SMART MONEY INVESTORS ARE SITTING ON A LARGE


PROFIT.

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PHASE II-RETAIL INVESTORS
BUYING
• BULL MARKET EVENTS UNFOLD.

• RETAIL INVESTORS BEGIN TO


TAKE INTEREST IN STOCKS.

• FLOOD OF RETAIL CAPITAL IS INVESTED AND


MARKET SOARS.

• MANY COMPANIES BECOME PUBLIC ,OR LAUNCH AN


IPO.

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PHASE III-SMART MONEY
SELLING
• STOCKS DOUBLE AND TRIPLE.

• SMART INVESTORS SELLS THE


OVERVALUED STOCKS TO
OVERCONFIDENT RETAIL INVESTORS.

• FRAUDS HAPPEN TO BOOST GREEDY


RETAIL INVESTORS CONFIDENCE.

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PHASE IV-BEAR MARKET

• MARKET IS OVERBROUGHT.

• NO MORE CASH TO FUEL THE RALLY.

• MARKET CAN GO ONLY IN ONE DIRECTION- DOWN .

• THE HINT OF NEGATIVE NEWS COLLAPSES THE


MARKET.

• PANIC SELLING STARTS-MARKET


FALLS QUICKER THAN IT ROSE.

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PHASE V-CRASH AND RISE

• NO ONE IS WILLING TO BUY


STOCKS AT THE EXIT TIME.

• RETAIL INVESTORS SELL EVERY


STOCK AT A UNDERVALUED PRICE.

• ONCE AGAIN THE CYCLE IS AT PHASE I

• MORAL: SMART INVESTORS “BUYS


LOW SELLS HIGH”.

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INVESTMENT STRATEGIES

• BEST STRATEGY TO MAKE MONEY IN A BULL MARKET IS TO


RECOGNIZE THE TREND EARLY AND MAKE SMART TRADINGS AT
THE RIGHT TIME OF THE STOCK MARKET CYCLE

• WAYS TO TAME THE BEAR


1. INVESTING IN TREASURY BONDS: INTEREST ON THESE
BONDS TEND TO RISE DURING BEAR MARKET
2.SHORT SELL: A TRADE THAT CONSISTS OF BORROWING
STOCKS YOU DON’T OWN, SELLING IT, WAITING FOR THE PRICES
TO FALL, THEN BUYING IT BACK AT A LOWER PRICE AND THUS
OBTAINING A PROFIT
3.INVESTING IN DEFENSIVE STOCKS: A LOW RISK WAY FOR
INVESTORS TO KEEP THEIR MONEY IN STOCK MARKET.THESE
STOCKS DO NOT FLUCTUATE A LOT.
UTILITY STOCKS( ENERGY,WATER )ARE POPULAR ONES

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LIST OF 10 WORST STOCK MARKET CRASHES

NAME DURATION TOTAL LOSS


1. 1932 CRASH 813 DAYS 86%
2. 1937-38 386 DAYS 49%
CRASH 665 DAYS 48.5%
3. 1906-07 71 DAYS 47.9%
CRASH 660 DAYS 46.6%
4. 1929 CRASH 875 DAYS 46.1%
5. 1919-21 694 DAYS 45.1%
CRASH
959 DAYS 40.4%
6. 1901-03
CRASH 393 DAYS 40.1%
7. 1973-74 999 DAYS 37.8%
CRASH 10/29
THE GREAT DEPRESSION(1929-
1942)
A DIFFICULT LEARNING EXPERIENCE FOR THE US
• WORST ECONOMIC CRISIS OF THE CENTURY
• GROWTH IN US INDUSTRIES, TECHNOLOGICAL PROGRESS, RISE IN NATIONAL INCOME,
EXPECTATION FOR GREAT FUTURE AND BOUNDLESS OPTIMISM FOR THE MARKET  ROARING
20’s GREAT BULL MARKET
• TOWARDS END OF 1929, FORMERLY GREAT BULL MARKET CRASHED DRAMATICALLY AND BEGAN
AN ECONOMIC DEPRESSION THAT LASTED FOR MANY YEARS
• OCT 24,25 AND 29,1929  THREE IMPORTANT DATES ON WHICH RECORD NUMBER OF STOCK
TRADING(SELLING) TOOK PLACE
• ON OCT 29,1929(BLACK TUESDAY), DJIA DROPPED BY 50%. IT IS OFTEN DATED AS THE START OF
THE GREAT DEPRESSION THOUGH THE STOCK MARKET DIDN’T CRASH ON A SINGLE DAY
• THE 1930’s SAW DJIA DROP BY 85%
• WORLD WAR II HELPED US TO GET THE NATIONS ECONOMY BACK ON ITS FEET FOLLOWING TE
DEPRESSION

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CAUSES OF THE GREAT
DEPRESSION
PART 1
OVERSPECULATION
• ROARING 20’S  US INDUSTRY BOOMED,STOCKS VALUE WENT UP
• LAKHS OF PEOPLE BECAME RICH
• GET RICH QUICK SYNDROME
• MARGIN BUYING  A RISKY TECHNIQUE INVOLVING THE PURCHASE OF STOCKS BY
BORROWING MONEY FROM A BROKER, USING THE SHARES THEMSELVES AS COLLATERAL
• MILLIONS MORTGAGED THEIR HOMES,INVESTED THEIR LIFE
SAVINGS,PURCHASED STOCKS ON MARGIN
UNEVEN DISTRIBUTION OF WEALTH
• MANY POOR AND VERY FEW RICH
• WAGES NOT KEEPING UP WITH INFLATION
• ALMOST 60% OF THE FAMILIES WERE BELOW THE POVERTY LINE AND
COULD NOT AFFORD CONSUMER GOODS
• MANY BOUGHT GOODS ON LOANS
• THE RICHER PEOPLE OWNED ALL THE GOODS THEY WANTED
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CAUSES OF THE GREAT
DEPRESSION
PART 2
EASY MONEY(CREDIT)
• INTEREST RATES ON LOANS TOO LOW  TOO MUCH BORROWING
• INTEREST RATES ON SAVINGS TOO LOW  TOO MUCH SPENDING 
INFLATION  OVERPRODUCTION
• BANKS OVER-EXTENDED
OVERPRODUCTION-AGRICULTURAL AND INDUSTRIAL GOODS
• BY 1929, US COMPANIES WAS RUNNING OUT OF CUSTOMERS
• PEOPLE OWNED THE NEEDED GOODS
• BETTER TECHNOLOGY
• GOOD GROWING CONDITIONS
• EXCESS OF SUPPLY OVER DEMAND OF PRODUCTS
• LED TO LOWER PRICES OR UNSOLD GOODS
• RESULTED IN LOSS FOR MANY COMPANIES

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CAUSES OF THE GREAT
DEPRESSION
PART 3
LOSS OF CONFIDENCE
• BY 1929, MANY INVESTORS REALISED THAT A CRISIS WAS LOOMING
AND SOLD THEIR SHARES
• LED TO THE LOSS OF CONFIDENCE-THE MAIN THING THAT HAD KEPT
THE SHARES RISING
• CONFIDENCE DIPPED AND NO-ONE WOULD BUY SHARES
1929 STOCK MARKET CRASH
• STOCK PRICES DECLINED IN THE AUTUMN OF 1929
• MASS SELLING OF STOCKS
• BY THE LAST WEEK OF OCTOBER,STOCKS HAD DROPPED BY ALMOST 50%

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EFFECTS OF THE GREAT
DEPRESSION
PART 1
• WIDESPREAD AND PAINFUL
• MORE THAN 85000 BUSINESSES FAILED
• FACTORIES AND MINES CLOSED
• BUSINESSES CUT PRODUCTION AND LOWER WAGES
• LAKHS OF INDIVIDUAL INVESTORS RUINED
• CONSUMER BUYING CAME TO A STANDSTILL
• ALMOST 14 MILLION WERE JOBLESS
• POVERTY AND PANIC PREVAILED
• VALUE OF ASSESTS DECLINED
• PEOPLE TAKE ALL THEIR MONEY OUT OF BANKS
1.they lost their savings,
2.banks failed and many closed,
3.bussinesses can’t borrow money
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EFFECTS OF THE GREAT
DEPRESSION
PART 2
• CAUSED WORLD WIDE DEPRESSION
• US’s INTIMATE RELATIONSHIP WITH OTHER WESTERN COUNTRIES
CAUSED SERIOUS ECONOMIC TROUBLES OVERSEAS
• WORLD WAR I LEFT EUROPE WITH LARGE WAR DEBTS AND US WAS A
MAJOR FINANCER AND CREDITOR OF POST WAR EUROPE . AS US STOCK
MARKET SLUMPED, INVESTMENTS TO EUROPE DRIED UP
• INDIRECT CAUSE FOR THE WORLD WAR II ( RISE OF ADOLF HITLER AND
FORMATION OF NAZI GERMANY )

HOW DID THE GREAT DEPRESSION END?


• OUTBREAK OF THE WORLD WAR II CAUSES
1.US FACTORIES FLOODED WITH ORDERS FOR ARMS,MUNITION,
UNIFORM,MEDICINES etc
2.UNEMPLOYMENT DECREASES AND PRODUCTION INCREASES
3.DEPRESSION ENDS COMPLETELY BY THE TIME US ENTERS WWII

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RESOURCES
• www.wikipedia.com
• www.stock-market-crashes.com
• www.wisegeek.com
• www.investorwords.com
• www.istockphotos.com
• STOCK MARKET AND CRASHES by RATCHANA
VASUDEV
• THE TIMES OF INDIA
• THE HINDU

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