What happens in a stock market crash?

The topic of this article is the answer to the following question: what happens in a stock market crash? There is sort of a general consensus among the public that the stock market is a frightening thing. I mean, there are all of these major stock market crashes just in the last 100 years that have ended in the loss of billions of dollars and the destruction of millions of lives. A lot of people want to get involved in the stock market, especially in these days when social security and retirement plans are being increasingly privatized and linked to stocks and bonds and other elements of the market. So this article is going to go through the basics of the stock market and why stock market crashes happen and what happens when they do.

There have been a few famous stock market crashes-1929, 1987. But those stock market crashes did not begin in 1929 or 1987. They actually started years and years before the crash really hit hard. This is easier to understand if we go through the differences between a bull market and a bear market. A really strong market when many investors and buying stocks, selling stocks, and making constant profits, then it is a called a bullish market. When the opposite is happening-investors are losing their money-then it is known as a bearish market. A market can be as bullish as a market has ever been in history-it can just continue and continue and continue to grow and to improve. But eventually it is going to fall. It is inevitable that economic downturn will happen at some point in time. So you really shouldn't be surprised if an incredibly bullish market eventually starts to flag. It is going to happen eventually. The market simply cannot withstand and support constant overwhelming growth.

However, there are at times a stock market downturn because of a specific situation. It can be an economic situation, a political situation, a social situation, because the market is based on a number of things that are usually not measurable mathematically or scientifically. Let's take an example: Enron. Enron was a massively huge scandal that occurred in 2002. You would think that the Enron scandal would only affect Enron stock. However, this is wrong. The confidence of all investors in any company and its practices and its future viability was shaken, and the stock market experienced a serious downturn. Another recent example is what happened to the market after the terrorist attacks in 2001. The confidence of investors, and the public, was shaken in the entire fabric of society. Investments took a downturn.

The technical meaning of a stock market crash is that the value of the stocks in the market drops incredibly all across the market. Then investors automatically panic. Because of the panic, more and more people sell their stocks. People don't think sensibly-they don't hold on to their stocks-and everybody rushes to jump off the boat and save themselves.

The people involved in a stock market crash are the shareholders who panic and cannot have enough self discipline to hold onto their stocks. They also speculate, driving down prices. Companies also don't react well to stock market crashes, because they worry about losing even more money, so they stop spending, leading to an even worse economic situation. Then people lose their jobs, and the situation grows worse. A stock market crash can begin as simply being the result of natural trends in the market, but then the problem is that people panic, whether it is the shareholder or the company itself or the analysts. Then you see a landslide, or a domino effect, that can't be stopped because people generally don't understand the financial situation and want to get out as soon as possible.