What is the stock market?

1. Stock trading in America started when interested investors began gathering under a buttonwood tree in lower Manhattan.

2. The New York Stock Exchange at the corner of Broad and Wall Streets facing Federal Hall and the JP Morgan Bank became the epicenter of speculation in the Roaring 1920s.

3. What is the stock market? A centralized place where people can invest in companies. Anyone can invest in the stock market.

4. What is a stock? A stock represents fractional ownership in a company. Each share represents a tiny piece of that ownership.

5. The more shares you own, the more money you earn when the company makes profits from its business. There are two ways to make money by owning a stock. 1) If you buy the shares at a low price and sell them at a higher price you will make money. (This is known as a capital gain.) The more profits the business makes, the more people will be willing to bid the share price higher. 2) If you buy the shares and hold on to them you can receive a dividend. This happens when the business decides to distribute some of its profits to investors. This is the slow and steady way to make money in stocks.

6. How does stock trading really work?. Trading on the stock exchange works a lot like an auction. Companies initially sell their stock by “going public” in an IPO or Initial Public Offering. Afterwards, stock brokers (people who buy and sell stock for investors) raise or lower the price depending on how many people want to buy or sell the shares.

7. During the 1920s, stock speculating seemed so easy that anyone could get rich quick. Even the shoe shine boys gave stock tips to the bankers whose shoes they shined!

8. What caused the Stock Market Crash of 1929? • Prosperity led to a lot of investment in the stock market. • In the late 1920s, the demand for consumer durables (more expensive items like refrigerators, radios, and automobiles) went down. As real business profits declined, making money speculating in stocks became “the only game left in town”. • Instead of going down as business profits declined, stocks soared in late 1928 and early 1929 and stock prices became separated from economic reality.

9. What caused the Stock Market Crash of 1929? • Buying on Margin • The stock market equivalent of the installment plan. • Speculators only had to put up 10-20% of the money to buy stocks. They borrowed the rest of the money from their stockbroker (who in turn borrowed it from the bankers). • This practice led to rampant over-speculation by amateur investors trying to “get rich quick”. • When stock prices declined, investors could not pay back their brokers...the brokers could not pay back the bankers...so they were forced to sell the stock at any price.

10. What caused the Stock Market Crash of 1929? Forced Selling Creates PANIC... Investors suffer from human emotions that swing like a pendulum between FEAR and GREED.

11. What was the Crash sequence? • “Black Thursday” October 24, 1929 - stock prices began to decline early in the day and cascaded into a selling panic when it becomes so obvious that prices are going down that nobody is willing to buy. • Stock prices fell 9% that day and concerned bankers got together and bought $30 million worth of stock to stabilize the market and restore confidence. • Despite the decline, analysts remained optimistic and President Hoover announced that stocks would recover.

12. What was the Crash sequence? • Hoover’s claims had little merit...and the bankers had only managed to calm the market for a day. • October 29, 1929 “Black Tuesday” - the stock market dropped another 17.3%

13. Concerned investors gathered outside the New York Stock Exchange

14. Stock prices eventually lost 90% of their value, wiping out a generation of American investors.

15. Only a small percentage of Americans were actually invested in the stock market when it crashed in 1929. ...every American would feel the effects... Nobody could imagine that the next decade would bring a Great Depression, countless bank failures, unemployment, and far-reaching ramifications for the role of government in the American economy and society...