Table of contentsIntroductionInvestigationConclusionIntroductionThe stock market crash of 1929 was an important 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 have also adopted their own regulatory services). . But what caused such disarray and devastation that resulted in a Great Depression and caused the government to form an entirely new regulatory commission? Say no to plagiarism. Get a tailor-made essay on “Why Violent Video Games Should Not Be Banned”? Get an original essayThat's what this essay focuses on. Through careful research and caution, the question was asked whether the cause was overconfidence in the market and economy. Overconfidence appears to be the devious devil who stole that $40 billion-plus sum from Uncle Sam. The sources indicated allude, to some extent, to the danger into which almost every American has indulged to excess confidence. Thus, the survey will focus on both the relevance and importance of this topic. The definition of overconfidence proposed by Google is as follows: “The definition of overconfidence is when someone is more confident than they should be given the situation and judges poorly his abilities or his opinion. » (2015) Based on this definition, we can already see the mistakes that [almost all] Americans have made, they have misjudged their abilities and their opinions. They bought stocks through margin borrowing from banks who gave money because they were also overconfident in their market and their customers. They used this borrowed money to buy shares from "good deals" in the illusory hope that some other fool would buy the same shares at a higher price, completely ignoring the underlying fundamentals of the company, as if was the company even making money? Or are company profits growing enough to justify someone else buying up the shares at a higher price? Blinded by unwavering optimism, they ignored these questions and when they ran out of fools to continue buying the stocks at higher prices (and when they realized the companies' fundamentals), they embarked on a selling frenzy that pushed stock prices to unimaginable levels. However, it is the overconfidence of all Americans that is to blame, the overconfidence of banks and brokers who lent money on margin without justification, the overconfidence of the government which thought that everything would come together and that economic prosperity would last forever, and of course the overconfidence of ordinary Americans who thought they could make money quickly through 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 avoid the same mistake of judgment will not happen again in the future. It also provides an understanding of how trust can affect investing and investors [and therefore stock prices and the economy] and, by learning from past emotions and misjudgments, economists, investors, governments and others are better equipped to handle the events of the future. A famous book on investing was written in 1949 by a famous and esteemed investor, Benjamin Graham.Graham is considered the father of “value investing”. (1949) Successful investors today, like Warren Buffet, are fans of this method. So, Graham knows his stuff. Value Investing focuses on the fundamentals of a company (which investors in 1929 ignored, as mentioned above), throughout his book (which aims to help investors earn value). 'money), he constantly preaches that you should never be optimistic in stock selection, and that in fact you should be pessimistic in times of economic boom and optimistic in times of suppression. If only his book had been written in 1929 instead of 1949, the Great Depression might have been avoided. This indeed illustrates that overconfidence was a cause of the crash. Graham believes that if investors had been more pessimistic, stock prices would not have been unreasonably overvalued and a crash would have been avoided. Source 2 states that the main reason for the crash was overvalued stocks. This means that the stock price was unreasonably high and only a crash could bring them back to normal levels. The only thing that will make a stock sell high is confidence that the stock price will continue to rise in the future and/or earnings will continue to grow (in other words , if the economy continues to grow). prosper) (1950). Common sense dictates that the economy (if it exists) can continue to thrive forever, an equilibrium will eventually occur and there are bound to be setbacks. But this was not as obvious to the Americans, banks and governments of 1929. They were adamant that stocks should continue to grow forever, and when equilibrium finally occurred (in the form of falling profits, slowing business and setbacks), it was such a shock that unfortunately set in stone a selling frenzy that, conversely, drove prices down to historic lows low and, ironically, created a loss of confidence in the American market that culminated in the Great Depression. One might wonder where the government/authorities were all this time. of this. They were there, but like the average American, they were blinded by an unwavering confidence in American prosperity. Source 3 gives a very important suggestion on this subject; he says the fiscal government has received a clear signal to raise interest rates. An increase in interest rates, associated with loans, would have made it more difficult for ordinary Americans to borrow on margin. However, the government has chosen not to raise interest rates, confident that the economy will continue to thrive and that Americans will be more than capable of doing so. to pay their enormous debt indefinitely. So when the economy slowed and stock prices fell, average Americans found themselves destitute, unable to pay their debts. Banks went bankrupt, unable to repay their savings, leaving millions of Americans with nothing. This link 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 difficulties faced. Many Americans, even those who were sheltered from stock speculation, had their entire savings held in these banks (which lent money carelessly, overconfident in their ability to get their customers' money into 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..