Great Stock Market Crashes: The Crash Of 1929

By Mike Rowan on August 17, 2009

This blog entry is the first of 5 entries that will go over the most painful stock market crashes in the past 100 years. History is usually the best indicator of how fragile the Economy and Stock Market can be at times. However, these lessons can be quickly forgotten, as greed tends to make the memory very short indeed.

The Stock Market Crash of 1929, and Beginning of the Great Depression

When: October 21, 24 and 29, 1929

Stock Market Crash Statistics: A string of terrible days led to a more than 40% drop in the market from the beginning of September 1929 to the end of October 1929. In fact, the market continued to decline until July 1932 when it bottomed out, down nearly 90% from its 1929 highs.

The Stock Market Soars during the “Roaring 20’s”

The 1920’s were a time of peace and great prosperity. After World War I, the “Roaring Twenties” was fueled by increased industrialization and new technologies, such as the radio and the automobile. Air flight was also becoming widespread, as well. The economy benefited greatly from the new life changing technologies.


As the Dow Jones Industrial Average soared, many investors quickly snapped up shares. Stocks were seen as extremely safe by most economists, due to the powerful economic boom. Investors soon purchased stock on margin. Margin is the borrowing of stock for the purpose of getting more leverage. For every dollar invested, a margin user would borrow 9 dollars worth of stock. Because of this leverage, if a stock went up 1%, the investor would make 10%! This also works the other way around, exaggerating even minor losses. If a stock drops too much, a margin holder could lose all of their money AND owe their broker money as well.

From 1921 to 1929, the Dow Jones rocketed from 60 to 400! Millionaires were created instantly. Soon stock market trading became America’s favorite pastime as investors jockeyed to make a quick killing. Investors mortgaged their homes, and foolishly invested their life savings in hot stocks, such as Ford and RCA. To the average investor, stocks were a sure thing. Few people actually studied the fundamentals of the companies they invested in. Thousands of fraudulent companies were formed to hoodwink unsavvy investors. Most investors never even thought a crash was possible. To them, the stock market “always went up”.

During the craze before the Great Depression a number of academics were predicting a crash if things didn’t “calm the hell down.” Sadly, for every naysayer, there were four bull-blinded academics guaranteeing the eternal rapid growth of the American stock market. Although many had been predicting the crash for years, the capricious and ignorant investors finally listened.

The Stock Market Crash of 1929

Four phases-Black Thursday, Black Friday, then Black Monday, and Black Tuesday-are commonly used to describe this collapse of stock values. All four are appropriate, for the crash was not a one-day affair. The initial crash occurred on Thursday, October 24, 1929, but the catastrophic downturn of Monday, October 28 and Tuesday, October 29 precipitated widespread alarm and the onset of an unprecedented and long-lasting economic depression for the United States and the world. This stock market collapse continued for a month, losing more than 40% drop from the beginning of September 1929 to the end of October 1929.

But perhaps the most important effect was chaos in the banking system as banks tried to collect on loans made to stockmarket investors whose holdings were now worth little or nothing at all. Worse, many banks had themselves invested depositors’ money in the stockmarket. As word spread that banks’ assets contained huge uncollectable loans and almost worthless stock certificates, depositors rushed to withdraw their savings. Unable to raise fresh funds from the Federal Reserve System, banks began failing by the hundreds in 1932 and 1933.

The Resulting Fallout of the Crash of 1929, and its Legacy

In fact, the market continued to decline until July 1932 when it bottomed out, down nearly 90% from its 1929 highs. This stands as the worst financial blow to the USA ever. The crash itself, though large in its own right, was nothing compared to the ensuing graveyard market and devastating depression.

The damage to the economy created a decade of financial pain and misery for the country. It wasn’t until World War II that the economy managed somewhat of a recovery. Stock Market Prices didn’t reach the pre crash levels until the mid 1950’s. As a result, the Stock Market Crash of 1929 still lives on as both legend, and an example of how things in the economy can go terribly wrong.