If you’re new to investing, there are understandably many reasons to be cautious. If history has taught us anything, it is that stocks are a highly volatile commodity, susceptible to any number of unforeseen threats.
The index that tracks the largest companies on the New York Stock Exchange (NYSE) and the National Association of Securities Dealers Automated Quotations (NASDAQ) is called the Dow Jones Industrial Average (DJIA). It is named after two journalists, Charles Dow and Edward Jones, and it is used to report on the state our markets. A Bull market is applied to a market that has a lot of upswings in its current or predicted stock prices. The name is based on the way a bull attacks, by pushing its horns up high in the air. Contrarily, a market with many falling stock prices is considered a Bear market. This name is derived from the downward, sweeping motion a bear with its paw in the ground, prior to an attack. It sends a wave of caution.
Investors crave a bullish market, but unfortunately, that isn’t always the case. The stock market crashes of the past are still a recent memory for many people.
The first crash was known as Black Tuesday and it signaled the beginning of the Great Depression because of its powerful impact. Over the course of one day in 1929, 16 million shares were traded and the Dow Jones lost $30 billion in market value when it dropped 25%. This led to the worst period in Amerca’s history at that time. After a long period of recovery and after being officially a Bullish market for over five years, the Dow once again plummeted in 1987, this time as much as 22% in one day. The scariest part of this crash was the fact that there were no obvious warning signs. To this day, experts are still divided over the cause. Even after the market went back to normal a short 24 hours later, it left a lot of investors worried.
The tech bubble crash happened in 2000. Large corporations started placing sell orders on their stocks, which enticed a panic among investors. They also started selling and caused the market to drop 10% within a couple of weeks. The fact that many tech startups faded into oblivion by 2001 meant that all the seed money also disappeared.
Real estate was to blame for the bubble that burst in 2008. The Dow fell almost 34% over the year and it took many months before it began the slow climb back to something steady and secure.