What is a Stock Market Crash:
A stock market crash happens when stock market prices drop suddenly and quickly without any forewarning. Sometimes, stock market crashes can be caused by economic events, major disasters, or panic from the public about a potential crash.
Features of a Stock Market Crash:
Some signs include not using market wisdom, speculative buying, buying story stocks, and creating market bubbles.
As the world evolves, so does the stock market. Today, there are various other types of stocks like meme stocks. When the stock market evolves, investors don’t always use traditional methods like calculating price-to-earnings (P/E) ratios. Instead, these investors use strengths in numbers, by buying a certain stock collectively to raise its price. This is one of the factors that contributed to “GameStonk.”
Speculative buying has also contributed to a crash. This occurs when investors buy a stock in hopes that they can resell it for a greater profit. A dangerous aspect of buying speculatively is that the risk of losing your money can be higher than gaining a profit.
Another important thing is buying story stocks. Story stocks are stocks that investors buy because they believe the company can create innovations that will revolutionize the world. A successful example of this type of stock is Tesla. Of course, not all story stock companies succeed.
Lastly, market bubbles can be dangerous. Stock market bubbles happen when an item (stock or otherwise) is priced much higher than its real value. The bubbles burst when that item’s price then falls rapidly to below or at its true value because of unsustainability. When this happens to a stock, it can cause a stock market crash.
Written by Allie Chang