Stock Market

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The stock market has the reputation of being a risky
investment, it did not appear that way in the 1920s. With
the mood of the country exuberant, the stock market
seemed an infallible investment in the future. As more
people invested in the stock market, stock prices began
to rise. This was first noticeable in 1925. Stock prices
then bobbed up and down throughout 1925 and 1926,
followed by a strong upward trend in 1927. The strong
bull market enticed even more people to invest , And by
1928, a stock market boom had begun.
The stock market boom changed the way investors
viewed the stock market. No longer was the stock market
for long-term investment. Rather, in 1928, the stock
market had become a place where everyday people truly
believed that they could become rich. Interest in the
stock market reached a fevered pitch. Stocks had
become the talk of every town. Discussions about stocks
could be heard everywhere, from parties to barber shops.
As newspapers reported stories of ordinary people like
chauffeurs, maids, and teachers making millions off the
stock market, the fervor to buy stocks grew
exponentially.

When someone did not have the money to pay the full
price of stocks, they could buy stocks "on margin."
Buying stocks on margin means that the buyer would
put down some of his own money, but the rest he would
borrow from a broker. In the 1920s, the buyer only had
to put down 10 to 20 percent of his own money and thus
borrowed 80 to 90 percent of the cost of the stock.
Buying on margin could be very risky. If the price of
stock fell lower than the loan amount, the broker would
likely issue a "margin call," which means that the buyer
must come up with the cash to pay back his loan
immediately.
In the 1920s, many speculators bought stocks on margin.
Confident in what seemed a never-ending rise in prices,
many of these speculators neglected to seriously consider
the risk they were...
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