The Stock Market Crash
In the 1920s, many
people bought stock in companies. If a company makes a good profit, the price of
its stock goes up. Stockholders can then sell their stock at a higher price than
they paid to buy it. In that way, those stockholders can make a profit.
During the 1920s, most companies were profitable. Stock prices rose steadily. For example, the price of stock in Radio Corporation of America rose 600 percent between 1928 and 1929. Stockholders who sold their stock made six times the amount they paid for it.
Newspapers in the 1920s carried stories of people who made huge fortunes by investing in (putting money into) stocks. More and more Americans hoped to "get rich quick" by investing in stocks. People spent their life savings or borrowed money to buy stock.
As more Americans bought stock, stock prices went up. Americans were sure stock prices would continue to rise. Few people thought about what would happen if prices went down.
Time Out! Add your answer the following question to the document you created for this activity. Be sure to write your answer using complete sentences and proper spelling, capitalization, and punctuation.
What was/is the danger of investing in the stock market?