The 1929 crash brought the Roaring Twenties to a halt.[35] As tentatively expressed by economic historian Charles P. Kindleberger, in 1929, there was no lender of last resort effectively present, which, if it had existed and been properly exercised, would have been key in shortening the business slowdown that normally follows financial crises.[32] The crash marked the beginning of widespread and long-lasting consequences for the United States. Historians still debate the question: did the 1929 Crash spark The Great Depression,[36] or did it merely coincide with the bursting of a loose credit-inspired economic bubble? Only 16% of American households were invested in the stock market within the United States during the period leading up to the depression, suggesting that the crash carried somewhat less of a weight in causing the depression.
"I think we're going to work through this continued intersection of domestic and international political risk, with the fact the economy is very good and the earnings projection is very good, and the valuations are creeping up, but they're by no means excessive, with interest rates at this level," said Julian Emanuel, chief equity and derivatives strategist at BTIG. "But our view has been all along that basically you've got to fix the relationship with China in order to really make material further upside progress."

Note:  The statements and information presented in this post is not intended as professional investment advice. It is solely an exploration of stock investing and the risks, perils, and behavior of stock markets and the economy. No one should rely on a single source of information or a single stock market and investing professional’s advice.  The overall message of the post might be to diversify stock, real estate, and cash/gold holdings as a hedge against stock market crashes.  Investors should look into hedging strategies but be aware that even hedging may provide limited protection from a crash.
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]
Another criticism of certain conventional risk models, is that they regard market crashes as extremely unlikely. Market models suggested 2008 was an incredibly rare event. However, the 1930s crash was fairly similar. Having extremely improbable events just eighty years apart makes very little sense. Of course, we could be massively unlucky, but it is of course far more likely that the model is wrong. And by wrong, we should be clear that we mean inappropriate for the high stress environments of a crash. Most of the time these models hold up just fine, but at the extremes they don't.

Other important economic barometers were also slowing or even falling by mid-1929, including car sales, house sales, and steel production. The falling commodity and industrial production may have dented even American self-confidence, and the stock market peaked on September 3 at 381.17 just after Labor Day, then started to falter after Roger Babson issued his prescient "market crash" forecast. By the end of September, the market was down 10% from the peak (the "Babson Break"). Selling intensified in early and mid October, with sharp down days punctuated by a few up days. Panic selling on huge volume started the week of October 21 and intensified and culminated on October 24, the 28th, and especially the 29th ("Black Tuesday").[26]
To be able to make good decisions amid a stock market crash, investors will need to be able to remain calm. As Buffett has said, "Investing is not a game where the guy with the 160 IQ beats the guy with the 130 IQ. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing."
Ideally, at the start of your investment journey, you did risk profiling. If you skipped this step and are only now wondering how aligned your investments are to your temperament, that’s OK. Measuring your actual reactions during market agita will provide valuable data for the future. Just keep in mind that your answers may be biased based on the market’s most recent activity.
The financial crisis ripped through Wall Street 10 years ago, pushing the global economy to the edge of the abyss. One might think those searing experiences would have created a learning opportunity — for managing risk better, understanding structural imbalances in the financial markets, even learning a bit about how our own cognitive processes malfunction.
In addition, the rapid growth of the video game industry led to an increased demand for video games, but which the manufacturers over-projected. An analyst for Goldman Sachs had stated in 1983 that the demand for video games was up 100% from 1982, but the manufacturing output increased by 175%, creating a surplus in the market.[4] Raymond Kassar, the CEO of Atari, had recognized in 1982 that there would become a point of saturation for the industry, but did not expect this to occur until about half of American households had a video game console; at the time, only about 15 million machines had been sold, far below this expected point.[4]
Hi Tamara, a vacation rental property owner in San Diego County I knew did well during the recession. Prices are much higher now and you’ll need to be a very good rental property manager. Take a look at the San Diego Housing market report if you didn’t read it. San Diego’s fantastic and the shortage there will never ease. My opinion is that you need to be a good marketer to keep it rented. If you build up a good database of returning renters, you should be okay. With VRBO and Airbnb, you’ll have extra reach too. With Trump bringing jobs and investment money back home, I can’t see a recession, just volatility and maybe some trade wars!

The next step that was taken was striving to make reforms in accounts. That implied that the companies now needed to make clearer balance sheets that disclosed more information on the transactions and investments of the company. The companies were asked to make a proper disclosure of all details such as stock options and investments that were made offshore by the companies. This was done to give the investors a better understanding of a company before they actually did invest in a particular company. Since this was not mandatory earlier, the investors couldn’t judge a company properly and invest in nonprofitable ventures which led to losses. Since the conflict of interest of the research firms led to losses, the new rule that was laid was that the investment bankers and the research analysts had to work separately. This was needed to be followed very strictly as there were high penalties charged in case of breach of regulations.
Following the 1987 stock market crash was one of the major reforms that were introduced was by the Chicago Mercantile Exchange and the NYSE. They together introduced the revolutionary “circuit breaker” mechanism. This system was installed in these two exchanges to that no major market crashes further occurred. What this mechanism did was halt the market in case of major fall of the Dow. During this period no trade could be carried out in these two exchanges. If the Dow fell 250 points or more, the market would stop its trading for an hour. If the fall had been for more than 400 points then the market would halt for two hours.
There's always a chance that the sell-off can morph into a decline of 10 percent or more from the market's September peak, which could thrust the market into its second so-called price correction of the year, Zaccarelli says. Still, he predicts that any downturn won't become a bear market, or 20 percent drop, and will instead turn out to be a good buying opportunity for investors with time to ride out any storm.
A year before its demise, Lehman's leverage ratio was a massive 30-to-1, which economists consider as being an extremely high risk. The investment banking giant had $22 billion in equity to back $691 billion in total assets. At that point, even a minuscule drop in asset value of 3% was enough to send one of Wall Street's giants careening into oblivion.

1986 and 1987 were banner years for the stock market. These years were an extension of an extremely powerful bull market that had started in the summer of 1982. This bull market had been fueled by low interest rates, hostile takeovers, leveraged buyouts and merger mania. Many companies were scrambling to raise capital to buy each other out. The business philosophy of the time was that companies could grow exponentially simply by constantly acquiring other companies. In a leveraged buyout, a company would raise a massive amount of capital by selling junk bonds to the public. Junk bonds are bonds that pay high interest rates due to their high risk of default. The capital raised through selling junk bonds would go toward the purchase of the desired company. IPOs were also becoming a commonplace driver of market excitement. An IPO or Initial Public Offering is when a company issues stock to the public for the first time. “Microcomputers” now known as personal computers were become a fast growing industry. People started to view the personal computer as a revolutionary tool that would change our way of life, while creating wonderful business opportunities. The investing public eventually became caught up in a contagious euphoria that was similar to that of any other historic bubble and market crash. This euphoria made investors, as usual, believe that the stock market would “always go up.”


For the rest of the 1930s, beginning on March 15, 1933, the Dow began to slowly regain the ground it had lost during the 1929 crash and the three years following it. The largest percentage increases of the Dow Jones occurred during the early and mid-1930s. In late 1937, there was a sharp dip in the stock market, but prices held well above the 1932 lows. The market would not return to the peak closing of September 3, 1929, until November 23, 1954.[17][18]
If we, in short order, enter into a recession it will be directly related to the bail outs and QE put in place under Obama’s watch. They did what they thought was best, but much of the benefit of all this asset inflation has not gone to the average person and it has put us in uncharted territory as we begin to embark on an unwinding journey in the Fall.
Housing supply is also an important dynamic to consider when looking at a then-and-now analysis of the housing market. Since mortgages were being given out with little regard to the borrower’s ability to pay back the loan, new home building skyrocketed to meet the new demand. In 2005, new home sales hit a 52 year high with 1.28 million new homes being built. Ten years later, only 500,000 new homes were constructed, dropping 61 percent from the peak ten years prior. An overall lack of inventory continues to be a driver in price appreciation.
In addition, the rapid growth of the video game industry led to an increased demand for video games, but which the manufacturers over-projected. An analyst for Goldman Sachs had stated in 1983 that the demand for video games was up 100% from 1982, but the manufacturing output increased by 175%, creating a surplus in the market.[4] Raymond Kassar, the CEO of Atari, had recognized in 1982 that there would become a point of saturation for the industry, but did not expect this to occur until about half of American households had a video game console; at the time, only about 15 million machines had been sold, far below this expected point.[4]
Mass censorship of conservatives and libertarians is exploding. You’ve already seen this with the demonetization and ultimate purge of Infowars and other alternative media outlets by mega-corporations working in tangent to stifle competition. But you are important in this fight. Your voice is important. Your free thought is important. Make no mistake, you are just as important as anyone in the Anti-American establishment.

The Commodity Futures Trading Commission (CFTC) investigation concluded that Sarao "was at least significantly responsible for the order imbalances" in the derivatives market which affected stock markets and exacerbated the flash crash.[10] Sarao began his alleged market manipulation in 2009 with commercially available trading software whose code he modified "so he could rapidly place and cancel orders automatically."[10] Traders Magazine journalist, John Bates, argued that blaming a 36-year-old small-time trader who worked from his parents' modest stucco house in suburban west London[10] for sparking a trillion-dollar stock market crash is a little bit like blaming lightning for starting a fire" and that the investigation was lengthened because regulators used "bicycles to try and catch Ferraris." Furthermore, he concluded that by April 2015, traders can still manipulate and impact markets in spite of regulators and banks' new, improved monitoring of automated trade systems.[3]


Stock prices began to decline in September and early October 1929, and on October 18 the fall began. Panic set in, and on October 24, Black Thursday, a record 12,894,650 shares were traded. Investment companies and leading bankers attempted to stabilize the market by buying up great blocks of stock, producing a moderate rally on Friday. On Monday, however, the storm broke anew, and the market went into free fall. Black Monday was followed by Black Tuesday (October 29), in which stock prices collapsed completely and 16,410,030 shares were traded on the New York Stock Exchange in a single day. Billions of dollars were lost, wiping out thousands of investors, and stock tickers ran hours behind because the machinery could not handle the tremendous volume of trading.
When Tobin’s Q is in its uppermost quartile, as it is today, it suggests this reward/risk equation is not at all favorable for investors. In other words, these “fat tails” get even fatter during these periods thus investors should look to hedge their portfolios against large declines. And this is precisely the “asset inflation” Taleb was referring to in the interview mentioned at the top of this post.
As a Young Family (married with one child) home buyer, we made a loss when we sold out to move to the Toronto area and currently rent. Our landlord is selling up a the Townhouses in our area have grown from $280,000 10 years ago to one just selling a few days ago for $630,000. Last month they were selling for $450,000. We now have no option but to continue renting and are now looking at the city for a Rental Condo (which is now cheaper than the 3 hour daily �suburb commute) . We didn’t even have the money to buy when it was worth $280,000. Our house hold income is around $80,000 a year. The reality is, the average Canadian has a debt load at a level even higher than the unsustainable US pre 2008 crash.
Note that the source of increasing "order flow toxicity" on May 6, 2010, is not determined in Easley, Lopez de Prado, and O'Hara's 2011 publication.[50] Whether a dominant source of toxic order flow on May 6, 2010, was from firms representing public investors or whether a dominant source was intermediary or other proprietary traders could have a significant effect on regulatory proposals put forward to prevent another Flash Crash. According to Bloomberg, the VPIN metric is the subject of a pending patent application filed by the paper's three authors, Maureen O'Hara and David Easley of Cornell University, and Marcos Lopez de Prado, of Tudor Investment Corporation.[58]
Take your money out of the bank ASAP.  If you still keep your money in the bank, go there and remove as much as you can while leaving in enough to pay your bills. Although it wasn’t a market collapse in Greece recently, the banks did close and limit ATM withdrawals.  People went for quite some time without being able to access their money, but were able to have a sense of normalcy by transferring money online to pay bills or using their debit cards to make purchases.  Get your cash out. You don’t want to be at the mercy of the banks.
In 1932, the Pecora Commission was established by the U.S. Senate to study the causes of the crash. The following year, the U.S. Congress passed the Glass–Steagall Act mandating a separation between commercial banks, which take deposits and extend loans, and investment banks, which underwrite, issue, and distribute stocks, bonds, and other securities.
LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA, Canada or the European Union countries, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.
So, the way to prepare for a market crash is not necessarily to artfully predict in advance, and step aside when the crash comes. That's virtually impossible. Rather, it can be useful to consider your overall investment strategy ahead of time, so that you know you could stomach the next inevitable crash when it comes. Ideally, through proper diversification and forethought you'll have an investment approach that will enable you to ride out a crash, rather than turning you into another panicked seller. If you only act on these issues when the crash comes, it will likely be too late.
×