Introduction
The Great stock market crash of 1929 was a significant event in the world's history particularly in terms of economic stability. The crash followed events of the First World War that had ended in 1919. The American industrial sector was growing at a steady rate, which prompted migration of farmers to the urban centres to seek for better standards of living, hence leaving the agricultural sector in the country struggling among other key industries (Nations, 2017). Unemployment rates rose by high rates, and the steel industry went on a decline. All these events led to the crumble of the stock market.
Discussion
The significance of the 1929 crash is encompassed in the lessons learnt from the crash and effects of the event, especially in the economics, investment and financial sectors across the world. The intensity of the effects in world economic history, whether positive or negative, make this event significant, while lessons learnt from its occurrence outline a path that appreciates the changes made after the crash.
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The Great depression of 1930 was a major consequence of the stock market crash of 1929. The crash led to a continuous decline of major industries in both the American and British economies: agricultural sector, steel industry, manufacturing, and production. Major industry players such as Hartry had already lost billions in the collapse of his steel industry in September, hence, the crash became a final blow to the manufacturing business which was the back bone of the American and European economies. Therefore, the US economy experienced a decline by 50 percent: 42 percent decrease in wages while the rate of unemployment continued to rise by a margin of 25 percent in a period of two years after the crash (Sornette, 2017). Due to these events, world trade plummeted by 65 percent hence affecting businesses across Europe, the Middle East and the United States of America.
Since most US citizens had invested in the stock market because of the high speculations during that period, the crash wiped people' bank accounts out. Many people were left bankrupt to the extent that most of them sold their assets to regain financial stability. Other investors were forced to sell businesses and cash in their life savings: Walter Thornton was forced to sell his luxurious roadster for 100 US dollars. Credit brokers called in their loans fearing the ripple effects of the crash hence forcing loan borrowers to struggle to raise margin payments.
Investors and the ordinary public lost faith and confidence in the Wall Street. In a period of two years, Sornette (2017) notes that the Dow was down by a margin of 90 percent that is, from 381.2 in September 1929 to 41.22 in July 1932. Due to this loss of confidence, the economy became unhealthy for business. Wall Street had to put so much effort to regain this confidence in the market for a period of almost thirty years.
The United States government under President Roosevelt was forced to put in effort in restructuring the economy of the country amid the crash. Therefore, the government established new programs to restore the economy on terms of availability of jobs and creation of employment opportunities, new rules and regulations, and establishment of new agencies to run the stock market. According to Sornette (2017), the US government established the Securities and Exchange Commission which regulated stock trading: all public listed companies and brokers were required to register with the agency which ensured transparent trading. Additionally, programs such as consumer protection and aid to the elderly and the disabled were developed and still exist. Programs such as tax deductions to cover health insurance for the elderly and Medicare are as a result of reforms after the crash.
The stock market crash was also significant in the sense that it emancipated the public, especially investors on the precautions of investment in stocks. A crash may take years to bottom out and most investors must have this knowledge while making decisions pertaining to their investment (Richardson et al., 2016). The Dow had experienced a cumulative decline of 23% during the Black Tuesday and Thursday and after the crash the most eminent market analysts predicted a die down of the crash which was contrary to what actually happened because the trend continued until 1932.
Additionally, investors ought to know that paying high premiums for growth is a risky strategy. Before the crash, most firms registered a PE ratio of about 15% averagely. These firms chose to entrust their money with investment managers paying close to 70 times the PE as premium, hence suffering financial losses after the crash (Richardson et al., 2016). An evidence of such a company is Radio Corporation of America which did almost 73 times of its stock value. Investors should also take into account that buying and hold investing does not guarantee future gains. The Dow was a marketing tool used in the stock market to watch price movements before and after the 1929 crash. Based on its indications, the stock market took a period of almost thirty years to hit its peak after the trough in 1929; therefore buy and hold investors would only receive dividends during this period.
Conclusion
Going forward, the crash of 1929 was indeed significant in setting a path for reforms in stock market trading which have sustained world economies for many years although there have been a few setbacks such as the 2008 financial crisis. Therefore, it is important to note that as much as the next bear market is certain, the exact time it happens and how deep it plunges are unknowns and investors ought to always be aware of this fact to avoid crises such as that of 1929.
References
Nations, S. (2017). A History of the United States in Five Crashes: Stock Market Meltdowns that Defined a Nation. HarperCollins.
Richardson, G., Komai, A., Gou, M., & Park, D. (2016). Stock Market Crash of 1929-A Detailed Essay on an Important Event in the History of the Federal Reserve. Federal Reserve History. Np, nd Web, 2.
Sornette, D. (2017). Why stock markets crash: critical events in complex financial systems (Vol. 49). Princeton University Press.
