During the twenties the success of industries, from steel to automobile to retail, led to record profits. Such success lured hundreds of thousands of Americans to invest heavily in the stock market – and many were teetering on the edge, borrowing money to do so. By August 1929, over $8.5 billion was out on loan, more than the entire amount of currency circulating in the United States at the time.
As with all the other financial bubble examples, more people looked to invest as prices increased – hoping that there would be an on-going rise. Speculation continued and a financial bubble was created once again
At the same time wheat prices were on a rollercoaster – fluctuating up and down dramatically as the global market was flooded with supply and in turn drought left big gaps to fulfil demand. All of this change led amateur investors to buy cheap stocks.
People started to slow their spending and falling industrial production is believed to have damaged confidence. Alongside a number global events, by late October people were panic selling their shares and by the 29th the stock market crashed on ‘Black Tuesday’, which many believe was the starting point of the Great Depression that, by 1933, saw world trade drop to one-third of its level just four years earlier.
At the time, Albert Wiggin, president of the Chase National Bank was reported to say: “We are reaping the natural fruit of the orgy of speculation in which millions of people have indulged.” A prominent statement that shows just how dangerous jumping on investment bandwagons can be.
But throughout all of these financial bubbles there is a reminder: investing in the right places, with the right objectives and a long-term approach, reaps rewards…