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.
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.
If you are really and utterly excited by the idea of buying stocks and making a profit from them then here are some tips and advice you can use to help you make your excitable dreams a reality. Most people will be utterly terrified by the idea of putting their own money into the stock market, but it’s like anything in life – you get out of life what you put into it!
I’m afraid to say that it all boils down to a good bit of old fashioned hard work. Yes, real and utter graft where you roll your sleeves up and break out into a bit of a sweat. Yep, if you want to know how to buy a stock, then it’s gonna take some real detective work and advice to help you unearth golden nuggets that you are prepared to give a go.
Perhaps you’d like to close your eyes and randomly point to any stock on a list. Sure, it might work but it’s what you may call a bit “random”, and is not really going to have any defined guarantee of success.
You could choose to find the larger companies such as Coke Cola etc., who traditionally grow year on year but perhaps only by a small amount. You’d have to work out if these stocks are any more profitable than putting your money into a savings account in the bank.
Buying Stocks Money Management Tips
In order to buy stock, you need to look at certain facts and indicators relating to certain companies.
Knowing the path to walk is half the battle, the rest of the battle involves you putting your shoes on and starting to walk along that path. If you randomly go for a walk in the desert then the chances of coming out alive may well be slim! This is the same as “hoping for the best” when it comes to buying stocks, so don’t get upset if this method does not work for you!
If however someone gave you a compass, instructions and a detailed plan of what to look for, when to turn left, when to turn right (etc.) then your chances of seeing civilization once again are rapidly improved.
If you need a more detailed step by step then I can highly recommend the System Pro Trading stock market e-course and video series.
So without further ado, shall we begin?
Let’s start by saying that right now you MUST practice many many times before you take the plunge and lose all your money. It can and does happen and countless people have wiped out their entire life savings trying to chase the dreams, always looking for the next “big thing”. Buying stocks is an art, but it is an art which can be mastered by anyone who is committed enough to make it work for themselves.
There are many psychological barriers that you will have to overcome and there will be numerous times when your spirit is challenged so that you are left wondering what to do. If you play it safe and follow these tips then prosperity can come. It’s not an impossible dream. If you really do want to get involved in buying stocks and selling stocks then give it a go!
What sort of trader do you intend to be when buying stocks?
If you are a short term investor (taking many trades each day) then you are going to have to be very quick to react to changes in the markets and you are going to have to be glued to the screen (unless you’ve got software to help manage your trades, stop losses etc.), whereas if you are a long term investor, you can afford to do much more in-depth research and take your time, and it is this second approach that beginners should consider, especially during the first few months or years while you refine and hone your skills (and they will come if you work them slowly and methodically). Buying stock can actually be a lot of fun, especially when all the indicators tell you that you’ve got it right, and it turns into a profit for you.
Money management
This is the big one, and one of the most important lessons you must master – even if you think you are a normally sane and conscientious person, it’s weird how we can react when faced with stressful dilemmas.
Overall, people will have their own opinions but if you trade no more than 5% of your capital on a single trade then this approach will help steer you for many months ahead, especially important when you are learning the ropes. It’s times like this that can lead people to think that buying stocks is impossible, but yet others find their niche and discover a whole new exciting world awaits them. Which camp are you going to be in?
If you have a large enough lump of money to use as your capital sum, then when buying stocks you may even wish to reduce your “exposure” to risk, so that no more than 1% to 2% of your capital sum is used in any one single trade. This buys you time and a more contented life, which is very useful when the chips are down and the trade is going against you.
What you will need to do is set up a “stop loss” (automated exit from a trade based upon a key set if criteria you give it) so that you are taken out of the trade if a certain amount of loss (or profit) is made. This is good if a big swing downwards happens, at least you won’t lose all your mind and money and can play again real soon! The only downside is if your trade is stopped when a big swing up happens. You will be kicking yourself because you will have wished you had ridden the ride all the way to the top of the trade and enjoyed the bumper profits that go with it.
This is the emotional roller-coaster I mentioned, and is precisely what you need to curb because it’s the kind of emotion that can lead to painful mistakes, so if you only make a 2% profit and could have made 40%, then do not worry – your goal was achieved, and you can feel smug with yourself knowing that you’ve worked a safe and consistent plan which will enjoy the upper hand in the long term.
I hope you agree that when buying stocks, the safe option sounds the most fun (well, most of the time anyway!)
The only thing to remember with a stop loss is that if a big drop occurs overnight then you are going to have problems and won’t be protected, so that is something to consider.
If you are thinking of being an options buyer then you can purchase what is known as a “protective put” as this will help protect you more.
Now, back to what we were saying, after all you’d really like to know all the ins and out’s of how to buy and sell stocks wouldn’t you? Let’s assume you are playing it ultra-careful and only wish to invest 2% of your capital on each trade. If you do this, then no stock can take you below the 5% loss threshold.
Buying at these small prices allows you to buy extra positions of larger sizes if the stock reaches a second buy point, and so thus you turbo boost your earnings – sounds good doesn’t it! Simply buy more of the stock when the breakout point occurs, or conversely, if you are more of the sort of person who likes to buy in the dips then simply go ahead and buy whenever the stocks dip further down.
Limit purchases when buying stock.
Is the Stock Market for you?
If you have set yourself up to be a responsible investor who wants to make buying stocks as safe as possible then you should think about setting limit purchases. This essentially means that you can purchase stock quickly as it dips below a particular threshold of your choosing (and thus offering the ability to boost your earnings further).
You might want to accumulate a position and continue to purchase every 2% drop from your last purchase. As an alternative you could make it so that the purchases are staggered. With this method, when the first 2% drop occurs, you buy more stock. Then if you wish, at say 5% below that you could go ahead and buy another 2%. Keeping diversified allows you to continue to buy stock in any one particular stock without exposing your risk any more.
How to set out your stock buying portfolio
It’s important to bring a sense of good diversification into your portfolio as you really do want to be in the game for the long haul and not lose all your money within 3 months. You could (but shouldn’t) put all your investments into the technology niche, or Utilities niche but this would be foolhardy. Nobody can predict what will happen down the line. Scandals can happen, natural disasters can happen and if you’ve not yet thought about it properly, then chances are you will get caught out.
Here is an example of how you MAY decide to set out your plans:
- Consumer goods: 10% of portfolio
- Healthcare: 10% of portfolio
- Technology: 10% of portfolio
- Utilities: 5% of portfolio
- Industrial goods: 15% of portfolio
- Basic materials: 10% of portfolio
- Financial markets: 10% of portfolio
- Cash: 20% of portfolio
- Service: 10% of portfolio
All of the above adds up to 100% of your money, split well between the various industries and sectors of life. It’s good to protect your money. Imagine if technology got crippled by a virus – your technology sector would get hit, and thankfully it won’t wipe out your entire portfolio.
If you are only placing 2% of your money into any one stock, then within, for example the consumer goods sector, you could choose 5 different stocks which when added together come to 10% of your money/portfolio mix. Of course, rules can be changed a little. You don’t have to have five of each type – you could choose one really promising stock to buy and put 10% into it, although more diversification will always be better in the long term. Less is best is one adage you must adhere to when it comes to buying stocks.
You can also place more into one particular sector if you wish, just be sure to make sure that sufficient research has been carried out – if you are under any doubts then play the long and slow game and expose no more than 2%!
Use the many tools online to help you whenever you can. Setting certain restrictions on purchases can really help you in the battle.
If your position drops a lot, then you can use a “limit buy” to purchase more stock. This enables you to increase the amount of exposure to the stock you hold when the position decays from, say 10% to 5%. Then you can increase your cash positions when buying stocks to increase your stake in other areas of the market.
When your positions start to gain, you can choose to sell the stock if you want to, and even set it up so this aspect of stock buying is automated so that stocks are sold when you reach certain positions. Alternatively just go for what is known as a “trailing stop” and you will be able to ride along the wave when your stock is making new gains – this is the most fun part of buying stocks and stock trading – making money!
If you set your trailing stop at 20% (for example) then this means that your stock simply will not sell unless it goes down as far as 20% from it’s highest gain. This buys you more room for the small ups and downs you will encounter and enable you to stay in the game for longer without losing your shirt and mind in the process, let alone your money!
During the journey/rally, if your profits start to increase in a large way then it makes sense to tighten the belt that holds the trailing stop. What I mean by this is that you might ant to change it so that it stops at 15% instead of 20%, and continue on so that when you’ve eventually made a massive gain you will have dropped the percentages down to 15% to 10% and finally 10% to 5%.
The only time this method will struggle to work is if the stock market crashes (and we all know how that story can go!), so learning more about strategies for hedging should be something to look at a little bit more closely. Buying stocks can be as easy or as hard as you want it to be – you don’t want to lose it all in a moment of madness though, so slow and dedicated practice is vital.
Never ever invest money until you can safely make a good percentage of winning trades. Does it matter if it took you as long s 2 years to get there? Heck no! Do it right and you can create a career out of doing this. Do it wrong, greedily and impatiently and there is a good chance you will be pushing the idea to the back of your head, claiming that the method does not work – how sad, and really, there is no need for it. Buying stocks can make or break you – you decide.
So to start the ball rolling, begin looking at the fundamentals of various stocks. As well as this you need to know about choosing the right stockbroker and of course follow these sound money management principles and you will be ahead of many other people who have tried to walk this path. It may look exciting but there are a whole heap of hidden dangers waiting to take all your cash away from you.
I appreciate that this has been a lengthy article but sometimes certain messages need to ring out loud and clear. Buying stocks and shares will be as easy or as hard as you choose to make it.
Keep looking out for rising companies in various sectors and look at their fundamentals. You may see another company to invest in, and further diversify your portfolio when buying stocks.
Using stock screeners, you can actually limit each screen to various sectors so that only the top few can be focused on more readily by you. This helps you solidify your thoughts and come to meaningful conclusions that make all the difference.
Learning about all the companies and finding out facts about them can be time intensive but incredibly enthralling, so if you are ready to delve in to the murky world of stock buying, I hope this has really helped in some way.
Filed under How Do I Buy Stock by on Sep 23rd, 2011. Comment.
For all the people who can't figure out how to buy shares without losing money.
The exciting share market is on the radar of many investors these days who are wanting to learn how to buy shares for themselves as a career option or for personal understanding simply because of the kind of return on investment one gets.
However, buying shares is different from buying anything else. In your search to buy shares, one cannot just go to a store and buy them from a given lot! Buying shares needs a lot of research about the companies whose share one is willing to invest into. It also requires the knowledge of how that particular share has fared on the stock market index over the years. It therefore requires a lot of time and energy knowing how to effectively buy shares.
How To Carefully Buy Shares – And Not Lose Your Mind
After an initial preliminary research has been done (before you decide how to buy shares) on the stock market and shares, one is intended to invest, the first and foremost thing they require is having a stock trading account and a broker to open the same. There are many stock brokers available in the market but the most preferred ones these days when learning how to buy shares is using a discount broker.
With a discount broker you can buy and sell shares and there are many banks that nowadays provide this facility. You can also find other options that are less expensive but banks are those where you can feel comfortable with the question as big as how on earth do you buy shares.
Finding out how to buy shares can be profitable if you are committed enough and can do your homework properly before purchasing any shares.
You should understand the risks involved when learning how to buy sahres and taking the step towards investing in the share market, and choose the company stocks based on their past performances. It is advised that you should avoid investment in startup companies to avoid higher risks.
You should also be patient enough to invest for a period of three to four years to get good results. You should also have a stable mind during the period when the rate of their shares have fallen and not act in panic. Knowing how to specifically buy shares in all situations will be critical, so prepare well as the road ahead can be both scary and exciting. Generally during a two or three year cycle period there are times when shares of even the companies that provide highest dividends also go down. Among the other essentials on how to buy shares include developing the skills to be able to understand the investment trends.
These days you can also find software to help you when buying shares.
These stock trading software packages are equipped with functionalities that will do research on the performance of different shares and gives you the best options to choose from based on the analytical results of their past performances.
Good luck in your journey! There is a lot more information on our website about shares and the stock market. Feel free to look around. We also have a more in-depth four part beginners guide to stocks and shares, and can also heartily recommend a “detailed video course called“System Pro Trading Stock market e-course” that will guide you along the way. When you desperately need to know how to buy shares, learn as much as you can before wading in with your money, it will be the best investment you ever making on your path to being a trader.
Filed under How Do I Buy Stock by on Apr 24th, 2011. 5 Comments.
