Crashes:
You were right to follow your hunch with McDonald's. Your 250 dollars has skyrocketed into 1000 dollars over a few years. Well, you've been checking the stock price recently and today, when you go get the newspaper, the headline reads "CRASH!". You read on and discover that the stock market has just dropped around 500 points, not to mention the fact that McDonald's stock value which has been slashed in half. You can't believe it- years of work, all gone, in one day.
Sounds frustrating, but if you were investing in the late 1980s, 1987 to be exact, it would of been true. On October 19, 1987 the stock market plunged 508 points, or 22 percent of the total market value. It was the worst crash, since 1927 which signaled the Great Depression. What brought about this crash, why such a drop in such a little time?
One major reason for the crash was fear. Fear of a correction. Fear of a drop. Fear of being to late to get out. The 1980s had brought large stock increases, people had been making fortunes on the huge surges in the stock market. People began to fear that the market wouldn't be able to go up forever, and eventually it would fall, and create what is called a correction. The fear began to accumulate around October 15th, when The Wall Street Journal published an article entitled, "Stocks May Face More than a Correction." It voiced fear that a correction would bring on a landslide. People began to listen, and big investment brokers began to worry. The SEC and NYSE listened too. They even talked about closing the market on the 19th when there was worry that the crash would come. Even though they decided to keep the market open, news of a potential collapse was the straw that broke the camel's back. The morning of 1987, began with a quick loss of around 150 points. Although, the market did rebound a little before noon, the landslide had begun, and the market was losing too fast to hold back. Many of the specialists, whose job it is to negotiate the trades between sellers and buyers, were going out of business, because the rules state that they must purchase stocks that cannot be sold. In the end, the market plunged, and after the closing bell rang in the NYSE, there was silence between the brokers. People were speechless, many broke.
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