For most new investors, frightened by the prospect of failing in the stock market, the idea of investing $ 1,000, $ 5,000, $ 10,000 or more is exciting and terrifying at the same time.
It’s exciting, because the potential to create wealth, financial security and a satisfactory legacy quickly is an exciting prospect.
It’s terrifying because the possibility of losing everything virtually overnight seems a very real possibility.
After all, stories about the collapse of the stock market and the great depression of 1929, and the great recession of 2008-2009, are still remembered by most investors today.
Should the prospect of losing a fortune in the stock market keep you from investing? The short answer is no.
Surprised? That’s because it is a myth that the stock market causes recessions and depressions invade our society. But just because everyone believes something, does not mean it’s true.
Here’s another amazing fact: The stock market crashes are a great money making opportunity for the smart investor .
Black Tuesday
The Stock Market Crash in the “Black Tuesday” -29 October 1929-had numerous causes.
First, it was unregulated . Investors, for example, had only contributing 10% of the capital needed to buy a stock. The remaining 90% was given to them by brokers and banks.
Second, they deceived the inexperienced investors with promises of easy wealth that flooded the market with borrowed money and their life savings.
Third, corrupt brokers, bankers, merchants and even some business owners worked together to manipulate stock prices and deceive ignorant traders to invest in more expensive shares.
Even with the lack of regulation of the financial sector, blindness, lies and corruption high, however, was the emotion, greed, exuberance, desire, curiosity, envy, excitement, hope, confidence , leading most people to invest more and more of their own money and borrowed money in the stock market in the 1920s
When the stock market crashed – something that happens regularly, it was not unique in 1929 or 2008 – most investors went into panic.
Most investors ignored cycles the stock market , rather than seeing the opportunity to buy strong stocks at bargain prices, they saw only danger. They hoarded their money, refusing to invest in anything after the crash. People who had not invested in the stock market also got scared and stopped spending money on consumer goods. Companies that do not have money from two primary sources, consumers and investors – broke, creating a low economic and spiraling unemployment in the country.
Worse, the inaction of the Federal Reserve unleashed more than 9,000 bank failures in the country. Everyone from millionaires workers saw their savings wiped. There was no insurance program Federal Bank at that time.
Terrified owners trying to survive banks began to accumulate money, denying access to credit, which caused great damage to large and small businesses as well as farmers and citizens everyday. Therefore, the lack of regulation, poor federal decision, corruption, collapse of banks and companies and then started the trend. . So powerful emotions during and after the fall of the stock market (not the crash itself) were the main causes of the Great Depression.
It sounds familiar?
The Crisis of 2008-2009
Many people think that the collapse of the American market values of 2008-2009 caused the Great Recession. Actually the great recession started almost a year earlier, in December 2007.
This crash was a reaction to the excesses that caused the recession and a reaction to the recession itself.
So, that was what really caused the Great Recession? Decades of stupidity, blindness and corruption aggravated by emotion , particularly greed and panic. History repeats itself.
During and after the Great Depression, for example, the federal government enacted a series of laws and regulations specifically designed to prevent corruption, speculation, bank failures and other forces that led to black Tuesdays. From the Reagan administration in the 1980s, these laws and regulations were eliminated. Then the Bush administration put executives in the financial industry by organizations such as the SEC, established to regulate the financial sector. Foxes guarding the henhouse. The SEC proceeded to punish widespread speculation and gambling’s most powerful financial institutions in the nation.
The result of these and other efforts related to financial deregulation of the industry? Most economic protection measures that had taken place for decades were gone. Financial institutions were left to make their own, and they did.
They created, for example, products for high-risk investment that won them millions establishing their own financial institutions for catastrophic failure.
Worsening crisis emerged, income inequality and rising consumer debt. An increasingly large portion of consumer debt was the billions of dollars of real estate debt.
The immediate catalyst for the Great Recession was the housing bubble and subsequent crisis .
That bubble born of deregulation, speculation, lack of government oversight, poor underwriting standards, easy credit, low interest rates, lending practices and high risk of corruption, particularly within the financial industry
New products, such as subprime loan programs , which were supported and encouraged by politicians and the federal government, which had been aimed at people with less than perfect credit, with insufficient savings and inadequate down payments.
What worsened the obsession these loans were subprime lenders giving these ratings to products that do not accurately reflect the risk of subprime mortgages.
Relying on assessments of credit bureaus, powerful investors thought that mortgages were a were a high yield investment, low risk, the Holy Grail of any trader. They invested heavily. When they finally realized they were buying mortgage paper without value, investors stopped buying and the real estate bubble exploded.
When it broke, panic ruled the financial industry and the mortgage house of cards collapsed. The great recession became official in December 2007.
Lehman Brothers bankruptcy presented in September 2008, AIG was on the verge of bankruptcy.
A growing crisis? Not for the knowledgeable investor
Between 19 September and 10 October 2008, these growing crises led to the stock market to plummet by 3,600 points. I continue to fall more in the first quarter of 2009 The stock market reacted to the Great Recession. Did not cause the Great Recession. Even the recession did not support
Just six months after the fall of the stock market came to an end, the market rose from its low of 6594.44 on March 5, 2009 to a stop beyond the 10,000 on 14 October 2009 Why what? Smart investors saw an opportunity in the bargain price of the shares. The market has been on a steady increase since then, reaching record highs despite the continuing national economic problems.
You can protect your capital and make Money in a Falling Stock Market
The stock market is cyclical , which we will explain further in another study. What goes up, down, and what is more important is what he always falls back up again.
collapses of the stock markets of 1929 and 2008 to 2009-and all the collapses of the stock market between that time-made the smart investors very rich.
ZenInvestor.org teaches students how to predict when the stock market crashes come and protect their capital and profits.
“In February 2007, my technical analysis showed me that the stock market and the economy were about to take a dive, and it could be very large,” says Erik Conley, founder of ZenInvestor. “I told my friends to leave the market. I was selling and changing my positions. I saw my forecast in July 2007 Most investors who waited until October 2007 had arrived late. ”
The world was in a recession for much of 2008. The crisis began in October 2008 for six months, the market went into free fall, coming to an end in March 2009 when the market downturn was ending, Erik walked into investing in the stock market when most investors were still selling the market or avoiding it like the plague.
Unlike Erik, investors do not understand that in crisis there are great opportunity for the savvy investor. The collapse of the stock markets are often the best opportunities in life of an investor. these meltdowns collapse of stock prices, which means strong actions that can be bought at bargain prices.
How to find these great stocks after a collapse of the stock market? By applying the cyclical analysis, fundamental analysis, technical analysis and take advantage of tools that ZenInvestor teaches as part of the Financial Literacy Program.
If you want to find out how you can take advantage of the panic and irrational behavior of others during a market downturn, contact Erik for a free consultation today.