Halloween special: Scary times in the financial industry

We have spoken to Jonathan Capelo, wealth advisor at Portocolom AV to know which moments in financial history he believes were more scary.

Investor Relations Specialist

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Halloween will take place on the 31st of October, and we wanted to go back in time and take a look at the most scary times in the history of the stock market, and in the financial industry in general. We have also spoken to Jonathan Capelo, wealth advisor at Portocolom AV to know which moments in financial history he believes were more scary.

Jonathan Capelo, wealth advisor at Portocolom AV

Throughout history the stock markets have generated countless moments of panic and fear among investors. Its curious but some of the most important of these events have occured in October. While September is traditionally the worst month for equity returns, October has seen some of the most dramatic moments in equity markets. Could October be a cursed month for investors?

“From my point of view there is one event that caused a turning point and that was none other than the Crack of 1929 and the subsequent Great Depression of the 1930s.”

Jonathan Capelo, wealth advisor at Portocolom AV

In the previous decade, the United States enjoyed world supremacy after emerging victorious from the First World War. Those days population lived in a state of permanet euphoria, which encouraged small and retail investors to invest in the stock market, as large returns and quick profits were promised. Proof of this was that in the period between 1924 and mid- 1928 the Dow Jones Index multiply by five in value. Another key aspect was the purchase of securities on credit so investors got into debt. All of this contributed to create a massive bubble in share prices.

Many consider 24th of October as the beginning of Crash of 1929. On that day, everyone on Wall Street was looking for sell their positions or those of their clients. For the first time there were no buying side, as there were no Market Makers at that time. The next day, in view of the seriousness of the situation, some of the most important bankers decided to solve the problem, buying shares with their own money of key companies in the United States. At first it worked, and the stock market began to rise on Friday afternoon. But the next day the trend changed dramatically. The following Monday, known as Black Monday on the 29th, the Dow Jones Index plunged 13%. The next day, known as Black Tuesday, the Dow Jones fell another 12%. More than sixteen million shares were sold these days, an all-time record that lasted 40 years. The stock market lost $14 billion between those two days.

As we have said, one of the main differences between this stock market crisis and the previous ones was that it directly affected to retail investors. Moreover, the use of borrowed capital when investing increased the problema and many people lost everything they had. There was no liquidity available, so many factories closed and unemployment rate soared. Unfortunatelly, this economic and social crisis not only happened in the US, but also in Europe and the rest of the world, being the first global crisis without previous precedent.

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Halloween special: Scary times in the financial industry