What is a Stock Market Crash?
A stock market crash is when then there is a sudden, rapid and uncontrollable downward turn in the price of a wide ranging section of stocks and shares that are listed on the stock exchange. They are usually driven by fear, and become an almost self fulfilling event once they begin, as investors look to take a hit as early as they can, fearing that prices are only going to go in one direction (down). This feeds into the general sense of panic, as everyone looks to sell at the one time, coupled with the absence of buyers, who realise what is happening and decide not to spend money in a rapidly declining market in which the assets that they purchase will decrease in price the moment they buy them.
A stock market is based on confidence in the values of shares, even allowing for acceptable fluctuations up or down, but if that confidence goes, you can very quickly have a situation of mass hysteria, and a group effort to dump shares onto a market that does not want them.
A stock market crash can be a short lived affair, or it can lead to a painful and protracted recovery period, resulting in recession or eve
n depression. A recession is when business activity slows down, and as a result, overall economic activity within an economic system slows down and contracts for a period. The average recession, according to the National Bureau of Economic Activity, lasts for about one year.
The worst case scenario from a stock market crash is that of a depression, which is a more severe and longer lasting event in which gross domestic product declines by more than ten per cent, leading to major social upheaval such as declines in living standards and double digit and long term unemployment.
What are the cau
ses of a stock market crash?
Well, given that the stock market is the centre stage for a huge amount of human activity (pensions, investments, company performance and precious metals to name but a few), and can be affected by an even greater number of outside factors, such as social, political, weather, geological or electoral events, again to name but a few; the causes can be numerous.
Thus a stock market crash can have a major effect on more than just the major institutional investors. In fact, given that those financial institutions that survive a major crash will usually bounce back, whereas society can be left to feel the effects and pick up the pieces, you could say that they are the least affected.
When they happen is a little easier to explain, albeit with the benefit of hindsight. Modern economic activity runs in waves of expansion and contraction, or boom and bust, if you prefer. As a market expands, economic activity increases, credit flows throughout the system, more people enter the market place for shares and assets, and prices increase. As people or institutions see that profits and values are going up, they want more, and so prices that people are prepared to pay (and borrow to pay for) become inflated due to demand, and out of touch with what they are realistically worth. Now we have what many people call a bubble, with activity, prices and demand stretched, and ready to burst.
Some economic theories suggest that a free market should, and will, correct itself from the highs of a fully heated economy, to a more sustainable and realistic level of activity. Given the losses of paper wealth (that which existed only on paper, i.e. that value of your shares, and not what money you have in the bank) and the knock on effects to society, a stock market crash is a very painful “correction” that politicians and economic theorists have been trying for years to iron out. Given the state of markets today, they have obviously not been successful.
A crash can happen in any market, be it a housing market, a minerals market, or even in a flower market (a crash in the tulip market once wiped out entire fortunes).
There have been many stock market crashes in the last century, but three of the big ones have been the 1929 stock market crash (often seen as the daddy of them all), the 2008 stock market crash (not far behind) and finally, the 2011 stock market crash.
The Stock Market Crash of 1929
All through the “roaring twenties”, money and people flocked to the stock markets. It was a time of excess living and seemingly unending profits, with huge gains made on the markets that attracted more investors, and feeding into the bubble that was expanding. In early September 1929, the Dow Jones market on Wall Street reached a high of 381.77 points. This was an unstable situation that, in late November, led to an 11% drop just after the start of trading that day, ending in a 9% drop by the close of business. This drop introduced fear into the mix, and people began to sell in larger numbers.
Leading bankers tried to solve the situation by buying large amounts of shares in order to restore calm but it did not work, and over the weekend of Friday the 25th of November 1929, panic set in, followed by more huge losses the next Monday. Then “black Tuesday” during which a mass panic sell occurred, and on that day alone, 14 billion dollars was wiped from the value of the market; lost by investors, many of them small time and who had borrowed heavily. 16 million shares were traded that day, a number not matched until the mid 1960’s!
It would take 15 years for the economy to recover, years that included the Great Depression.
The 2008 stock market crash was brought about in the main by a banking crisis in America caused by sub prime mortgages, where large amounts of money were lent to people with bad or poor credit ratings, as well as banks lending much greater amounts than they actually held in deposits (known as the debt to equity ratio). Coupled with the fact that many economies were already contracting, the banking crisis spread to Europe, and once again, confidence was lost and investors pulled their money.
In that crash, the market lost 21% of its value on the week of September 16th, followed by another 18% the following week.
Stock Market Crash 2011
Another stock market crash occurred in August 2011, when prices fell heavily across the world. The reason was a fear that the sovereign debt crises being experienced by some countries in the European Union would spread from there to other parts of the world, at a time when economies were still fragile from the banking crisis and credit crunch of 2008. Weak economic data from America also fed into investors seeking a safer place to put their money, as evidenced by soaring gold prices.
Filed under How Do I Buy Stock by on Jan 19th, 2012. Comment. 
Buying shares and stock in companies used to be the preserve of those within the financial industry, and had a “mystique” about it as being very high pressure stuff, not for the faint hearted or non-mathematical. The information technology age has changed all that, and has made buying shares online an easy task for those with access to a computer, which is most people.
It goes without saying that those with very large amounts of money, or a large portfolio (basically your entire collection of shares and stocks) of shares and assets will still want to use the services of a professional analyst and trader, but for the rest of us, it is now possible to use the net when buying shares online.
How to buy Shares online
Once you know how to buy shares, it seems easy, but first of all there are different types of ways, or people through which you can do it, and they range from the very cheap to the very expensive, depending on what service you want.
Stockbrokers buy and sell stocks and shares. The first category is the cheap and cheerful discount broker service. Here, using their web service or site, you will be able to look up and buy and sell shares. They will take your order and carry it out, and not much more than that. The fee you pay them will usually be per transaction, or per the amount of shares they buy for you, although some will give a discount for bulk transaction buying. Look for any minimum trade requirements, or inactivity fees that will kick in if you do not make a certain amount of trades per month for example.
You set up an account with them by logging in with them, and you take it from there in terms of buying and selling shares online. Due to the relatively small fee you pay them, there is no advice given and not much help either. Most offer a tutorial at the start which will guide you around the site and service, but in the main, if you want more than just a simple order taking service, you will have to either upgrade ( there’s always an upgrade!) to a new package that offers more, or seek a different service.
Further up the price ladders are stockbrokers that will make analysis available to you through reports and general analysis of the economic conditions. These can be in the form of information that they make available online to users that pay for the service or, more expensively, to you as an individual. This kind of information can be very helpful when buying shares online, so long as you understand it and it is tailored to those at your level of financial understanding, be it beginner, intermediate or whatever.
Finally there are money, or wealth managers. For a fee or a percentage of profits, they will manage your wealth for you, and this can range from your online activity alone, to all your financial activities.
Buying Shares Online
Buying shares online should begin with as much research as you can do. There is a huge amount of information available, both online and in print. If you are a total beginner, then you could start by attending one of the many classes that are offered, either by companies looking for you to sign up with them, or independently. You could also ask a friend or colleague that you know to be involved in buying shares online about the service that they use. You might even try your bank who may offer this or a similar service.
Whilst many will offer strategies that lead to profit, start at the very beginning; learn the language of financial trading and how is it done. Most websites even offer to set you up with an account that uses imaginary money, thus you can learn through your mistakes without getting financially burned.
Before signing up with a particular trading website, look at any testimonials they may offer or look up any reviews or press that may be out there.
Signing up is usually a straightforward affair. They will need the usual personal details, as well as possibly your social security number and documentary evidence. You will also have to deposit money into your trading account.
Approval may not be instant, but it doesn’t usually take long. Take some time to look around the online services of whatever broker firm you use, become familiar with their service and software before you launch into spending your money.
Once you are in, it is simple to make a trade. When buying shares online, you usually have to enter a unique, short code for the company in which you are buying and the amount of shares that you want to buy. The next step is to be offered a price for the shares, which you must decide on relatively quickly, around thirty seconds or so. Then, if you buy them, they are deposited into your portfolio, and the software will offer you updates on the value and performance of your shares.
It goes without saying that buying shares online is risky and that at some stage you will lose money so it makes sense to have some kind of overall strategy. Decide, after doing your research, why it is you are buying shares online. Do you want to be involved in buying shares or other types of financial instruments that give you a dividend (a payout) on a regular basis, thus providing you with an income, or are you interested in trading so that the initial sum of money you invested grows through buying shares online at one price and then selling at a higher price?
Some companies will not pay a dividend to investors, but this is on the understanding that they will use the money to grow the company and increase share value (either that or things are so bad for them, that they cannot afford to pay out!). Remember also that you will incur fees for trading, so making lots and lots of trades may eat into any profits that you make.
Online trading is extremely easy and straightforward, although remember the advice that just because you can make a trade, doesn’t mean you should. Take your time, do your research and be patient!
Filed under How Do I Buy Stock by on Jan 13th, 2012. Comment.
Stock Market News 5th January 2012
Here is todays roundup of some of the stock market happenings for today across the various timezones where trade usually commences. Apologies for any data not reported, however we hope you find this a useful summary.
Once again in the Uk, we see that investors fearing the Eurozone and are afraid to go about their business. As a result this has once again shown that the Uk blue chip shares index closed down at 0.8% lower than yesterday. The fear is that Euro zone countries and banks will find times harder than ever before to grow and nurture their businesses.
The trouble is that every time the Euro tries to go for a rally it seems to get slapped in the face and knocked backwards again, so there have been plenty of opportunities to get yourself disappointed!
Out of all the various Blue chip companies, Vedanta became the largest loser for the day, dropping by 5.2% as a decline in Copper prices ensued.
On the flip side, the chip maker ARM holdings had a great day, managing to rise by a 2.6%, because UBS placed a short term “buy” rating. This is all due to the fact that they’ve seen good solid sales of top grade phones.
USA stock market news items
In new York, there has been a relative (yet once again, cautious) report that has shown that the jobs recovery has seen an increase in it’s pace. This report has actually surprised many analysts who actually only predicted about half of the recover would happen.
In terms of caution you also have to bear in mind that there can be some seasonal items which will affect the outcome. At this time of year it is possible for results to be tainted somewhat, or in fact over-inflated. Company bosses will tend to keep employees on their payroll for accounting requirements, and they may choose to revise their readings at a later date.
However despite this being a rather volatile period of time, it must be said that things are definitely more optimistic for the US jobs markets at the moment so we cannot discount this news outright. Despite the fact that these claims have been made, and investors have been cautious, the trend is good, backed up also by the fact that the labor department has reported a dip in jobless claims for the first time in 5 weeks, falling by 15,000.
Tech stocks have had a confident push north today thanks to new coming from leading computer hard drive company Seagate who have reported multiple good news items in relation to sales. Confirmation to follow later but second quarter sales are expected to be between $3.1 billion and $3.2 billion.
So overall, a normal day at the office – a mixed bag of news, fears and speculation. Things are not all doom and gloom and some sectors are pushing ahead. Thanks for reading.
Filed under Stock Market News by on Jan 5th, 2012. Comment.
Stock Market News 4th January 2012
Here are a number of economic summaries in regards to the news surrounding stocks and shares for the 4th January 2012.
In the United Kingdom, there has been news released stating that the growth for construction continues to grow, which is obviously a positive step in the right direction although experts are still warning of market stagnation issues for the wider economy, and tough times ahead. Some civil engineering schemes have reported some of the most significant growth in this sector.
The crossrail scheme in London has reported the fastest growth for the month. Again good positive signals. Aiding these positive growth news items are results produced. Reports such as the Markit/CIPS (purchasing managers index) survey (for construction) signalled positive growth.
stock market news
This survey normally shows that anything over 50 signals expansion in a market. For December, it rose to 53.2 (previously recorded at 52.3 in November). Employment levels being boosted as well as new business reportings helped this growth to manifest.
Across other parts of the construction industry there has been other growth numbers recorded. These include the likes of commercial construction (growing at its slowest pace however) and also domestic housebuilding. This Uk housebuilding growth signifies 12 consecutive months of growth, but there are still warnings being issued that this makes for only 7.6% of the total UK economy.
In The USA there has been some good news in relation to economic data. The US stocks in general have seen good growth which has managed to erase t
he previous losses which came from yesterdays market results. This has come about because of strong post-holiday shopping enjoyed by US citizens and visitors.
Additionally, car sales remain healthy and have continued to do so throughout December 2011. This data has helped to fend off worries in regards to the recent debt troubles across Europe which has been the focus of many people in recent times.
Thankfully this data is s
een as a positive uplift, and is certainly helping to ease concerns of investors worldwide. In the USA the DJIA rose 13.63 points to 12,411.01. Out of all 30 components, 17 of the DJIA components saw a rise. Even the S&P500 (SPX) rose somewhat (to 1,277.30).
The Ford Motor Co. reported a 10% rise in sales for December which saw shares prices increase by 3%. This report is further boosted by the fact that retailers in the US have seen continued rises for Wednesday.
Wall Street saw some afternoon rises, which helped to clear some losses which had earlier surfaced because of the worries of the debt issues in Europe.
Other stock market news items of interest:
Oil prices close at an 8 month high, so if you’ve managed to get into buying oil stcks and shares in the past few months then you should be happy with how things are going within your portfolio. This means that the futures market has seen oil stocks settle to a comfortable $103.22 a barrel, the best it’s been since May 2010.
Gold futures have regained their “safe ha
ven” status this week because they’ve just risen to their highest position for 2 weeks. Investors have remained concerned about the euro-zone and of course Iran.
The delivery for February Gold rose $12.20 (0.8%) to an impressive $1,612.70 an ounce (via the Comex division of the New York Mercantile Exchange), making this the highest settlement for Gold since 21st December.
So all in all, onwards and up
wards, remaining optimistic yet cautious.
Filed under Stock Market News by on Jan 5th, 2012. Comment.
Is The Stock Market Open Today?
Here is a handy little widget that will tell you the opening hours for the NYSE.
Obviously knowing the right times is critically important, so I hope this helps in some way.
Question 1 – What Times Do The Actual Exchanges Open?
The London Stock Exchange (LSE) is open from 8:00 AM – 4:30 PM (UTC+0) and
The opening times for the New York Stock Exchange (NYSE) is open from 9:30 AM – 4:00 PM (EST) and
The Tokyo Stock Exchange is open from 9:00 AM – 3:00 PM (UTC+9), also the exchange closes for lunch from 11:00 am to 12:30pm
Question 2 – What Are The World Exchanges? I don’t understand which one is which!
Well, in order of market capitalization, the following is a good guide to each stock exchange.
1.) United States NYSE / NASDAQ
2.) Japan Tokyo Stock Exchange
3.) United Kingdom London Stock Exchange
4.) China Shanghai Stock Exchange
5.) Hong Kong Stock Exchange
6.) Canada Toronto Stock Exchange
7.) India Bombay Stock Exchange / National Stock Exchange of India
8.) Brazil BM&F Bovespa
9.) Australia Australian Securities Exchange
10.) Germany Deutsche Börse
11.) China Shenzhen Stock Exchange
12.) Switzerland SIX Swiss Exchange
13) Spain BME Spanish Exchanges
14) South Korea Korea Exchange
15) Russia MICEX
16) South Africa JSE Limited
There is plenty to go at with that lot. However when you are asking “is the stock market open today” then generally yes, somewhere in the world a market will be trading, as of course they will all trade at different times of the day (and night) depending upon where you are situated. The only exception to this of course is a brief amount of the time when all exchanges are sitting on a weekend. At some point though, one continent will be hitting a Monday and then the trading will begin again.
Here are some nifty world time zone clocks whihc will put a smile on your face.
Filed under How Do I Buy Stock by on Oct 3rd, 2011. Comment.
