IndexIntroductionInvestigationConclusionIntroductionThe stock market crash of 1929 was a significant event (1949). Not only was it the first major stock market crash in history, but it also led to major economic influences/events such as the Great Depression and the introduction of regulations through the Securities and Exchange Commission (other countries also adopted their own regulatory departments). But what caused such disorder and chaos that culminated in a Great Depression and led the government to form an entirely new regulatory commission? Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an original essay This is what this essay focuses on. Through thorough research and caution, the question was formulated as to whether overconfidence in the market and the economy was the cause. Overconfidence seemed to be the devious devil that stole that sum of over $40 billion from Uncle Sam. The sources indicated allude, to some extent, to the danger that almost all Americans indulged in, overconfidence. Therefore the investigation will focus on both the relevance and importance of this topic. Google's definition of overconfidence is as follows: "The definition of overconfidence is when someone has more confidence than they should based on the situation and misjudges their own abilities or opinions." (2015) Based on this definition we can already see the mistakes that [almost all] Americans have been involved in, misjudging their own abilities and opinions. They bought stocks with margin loans from banks that donated money because they were also too confident in their market and their customers. Did they use this borrowed money to buy shares from "hot tips" in the deluded hope that another fool would buy the same shares at a higher price, completely ignoring the underlying business fundamentals, as if the company was actually making money? Or do companies' earnings grow enough to justify someone else buying back the shares at a higher price? Blinded by unwavering optimism, they ignored these questions, and when they ran out of fools to continue buying stocks at higher prices (and when they realized the companies' fundamentals) they began a selling spree that pushed the stock price to unimaginable lows. which has been achieved. However, the blame lies with the overconfidence of all Americans, the overconfidence of the banks and brokers who lent marginal money without justification, the overconfidence of the government who thought that everything would seek itself and that economic prosperity would last forever, and of course the overconfidence of ordinary Americans who thought they could make quick money from the market. Investigation Of course, the importance and relevance of such an investigation is to understand why the financial world is the way it is today, why the government regulates the way it does and, of course, to prevent the same misjudgment from happening again in the future . It also establishes an understanding of how confidence can affect investments and investors [hence stock prices and the economy], and by learning about past emotions and misjudgments, economists, investors, governments and the like are better equipped to manage the events of the future. The famous investment book was written in 1949 by a famous and esteemed investor, Benjamin Graham. Graham is considered the father of “value investing”. (1949) Today, successful investors such as Warren Buffet are supporters of this method. So Graham knows his stuff. Value investing yesfocuses on a company's fundamentals (what investors in 1929 ignored, as mentioned above), throughout his book (the purpose of which is to help investors make money) he continues to preach that one should never be optimistic in stock selection stocks, and that in fact one must be pessimistic during economic booms and optimistic during periods of repression. If only his book had been written in 1929 instead of 1949, perhaps the Great Depression could have been avoided. This indeed shows that overconfidence was the cause of the crash, Graham believes that if investors had been more pessimistic, stock prices would not have been unreasonably overvalued and that a crash would have been avoided. Source 2 lists the main reason for the collapse was overpriced stocks. This means that the shares were priced unreasonably high and that only a collapse could bring them back to normal levels. The only thing that will cause a stock to sell at a high level is confidence that the stock's price will continue to rise in the future and/or that earnings will continue to grow (in other words, if the economy continues to grow ). prosper) (1950). Common sense says that the economy (if nothing else) can continue to thrive forever, eventually an equilibrium will occur and there are bound to be setbacks. But this was not so obvious to Americans, banks, and governments in 1929. They were adamant that stocks must continue to rise forever, and when breakeven finally came (in the form of declining profits, business slowdowns, and arrest) was such. a shock that unfortunately set in stone a selling frenzy that, inversely, lowered prices to historic lows and, ironically, created a mistrust in the American market that culminated in the Great Depression. You might be wondering where the government/authority was during all of this. They were there, but, like the average American, they were blinded by an unshakeable faith in American prosperity. Source 3 provides a very important hint in this regard; it is stated that the fiscal government has given a clear signal to increase interest rates. The rise in interest rates, associated with the loans, would have made it more difficult for ordinary Americans to take out margin loans. However, the government has chosen not to raise interest rates, confident that the economy will continue to prosper and that Americans will be more than capable of doing so. pay their huge debt indefinitely. So when the economy struggled and stock prices plummeted, average Americans found themselves broke, unable to pay their debts. Banks remained bankrupt, unable to repay savings, leaving millions of Americans with nothing. This links to source 4 (a documentary), listening to the stories of victims of the Great Depression, it is clear that the banking system played a major role in the hardships they experienced. So many Americans, even those immune to stock speculation, had all their savings held in these banks (which lent money carelessly, too confident in putting their customers' money in the hands of speculators). This documentary further reiterates the importance of confidence in the economy by illustrating how radio was used during the Depression to restore confidence in Americans in what became known as "fireside chats." (1935) It seems that the government has gone from a hands-on approach where they thought the prosperous economy would look for itself, to a much more active approach where they had to use everything they could to restore the lost confidence in consumerist American. speech is one of these radio speeches, delivered by the.