The following table is the Stock Market History of Returns for the 20th century.  

Throughout that time period the stock market returned an average of 10.4% a year.

Only $1,000 invested in 1900 would have a value over $19.8 million by the end of 1999.
At 15% average return per year, it only takes 30 years to turn $15,000 to $1 million.

Market Crash History

2000 Crash

Introduction:
From 1992-2000 the markets and economy had a record period of growth. The IPO market had new companies trading at over a 1 billion dollar market cap, with no profits and less than 1 million dollars in revenue.

The NASDAQ was trading at 4234.33 on September 1, 2000. From Sep 2000 the NASDAQ dropped 45.9% to 2291.86 by Jan 02, 2001. In Oct. of 2002, the NASDAQ dropped as low as 1,108.49 which is a 78.4% drop from its all-time high of 5,132.52 in Mar. of 2000. A sum of 8 trillion dollars of wealth was lost in the market crash.

Causes of the Crash:

1. Corporate Corruption

Many companies overstated their profits by means of fraud and accounting loopholes and they hid their debt. Corporate officers had outrageous stock options that diluted the company.

2. Stocks Were Overvalued

Stocks were trading in the hundreds and some in the thousands on a P/E basis. Some companies, which were losing tons of money with no hope of profit for many years, had over a 1 billion dollar market cap.

3. A Wave of New Day traders and Momentum Investors

The arrival of the Internet and online trading provided a fast and inexpensive way to trade the markets. This led to millions of new investors trading the markets with little or no experience.

4. Conflict of Interest by Research Firms

Stock analysts and investment bankers worked very closely together. Whenever a company was trying to raise capital, the investment bankers made sure their research firms would put positive ratings on stocks. This caused companies to have favorable ratings although they were in severe financial trouble. In some cases analysts had favorable ratings on a stock less than a month before the company filed for chapter 11.

Reforms after the Crash

1. New Rules for Day traders. Investors need at least $25,000 in their account in order to actively trade the markets. New restrictions were placed on marketing methods for day trading firms.

2. CEO and CFO accountability for their balance sheets. CEO's and CFO's are now required to sign-off on their statements. Also, the punishment for fraud has been beefed up.

3. Accounting reform. This includes more disclosure of balance sheet info. Things such as stock options and offshore companies are to be disclosed so investors can better judge if the company is really producing a positive cash-flow.

4. Separation of Investment Banking and Analyst Research.

Fines were given to the big firms that were mainly responsible for deceptive practices. There was major reform to ensure divide research from the investment banking business.

1987 Crash

Introduction:
The markets topped on August 25, 1987 with the Dow hitting a record 2722.44. Then the Dow started to decline and by September 22nd the Dow was down 8.4%. Then the markets rebounded and on October 2nd the Dow was up 5.9% from September 21st. Over the next 7 days the Dow would drop 13.5% from its high on August 25th. On October 19th, 1987 the market crashed. The Dow dropped 508 points or 22.6% for the day. This was a drop of 36.7% from the record high of 2722.44 on August 25, 1987. The stock market had lost half trillion dollars of wealth.

Causes of the Crash:

1. No Liquidity:
During the crash, the markets were not able to handle the large volume sell orders. Most common stocks on the NYSE were not traded until late in the morning of October 19th. No one knows why investors all wanted to sell at the same time.

2. Stocks were overvalued:
Stocks were trading at a historically high P/E ratio. Though from 1960 - 1972 stocks were also trading at a high P/E ratio yet no crash happened. Therefore, high P/E ratios don't always cause a crash.

3. Computer Trading and Derivative Securities:
Large institutional investing companies used computers in order to automatically order large stock trades when certain market trends prevailed. Some analysts also claimed that index futures and derivatives securities buying were to blame.

Alterations after the Crash

1. Uniform Margin Requirements:
This was done to reduce the volatility for stocks, index futures and stock options.

2. Computer Systems:
It used to take 20 - 25 keystrokes to enter a trade. With new computer systems, a trade could be done with one keystroke. And if something was wrong, the system would just reject it. This increased data-management efficiency, accuracy, effectiveness, and productivity.

3. The NYSE and the Chicago Mercantile Exchange instituted a "circuit breaker" mechanism. Trading would be halted on both exchanges for one hour if the Dow Jones average fell more than 250 points in a day and for two hours if it fell more than 400 points.

1929 Crash

Introduction:
On September 4, 1929 the stock market hit an all time high as a result of the American industrial revolution. At that time banks were invested profoundly in stocks and individual investors borrowed heavily on margin to buy stocks. By October 24, 1929 the stock market was down 20%. On October 28, 1929 the stock market was down another 13.5%. On the historical day of October 29, 1929 the stock market dropped 11.5% to bring the Dow down a total of 39.6% from its high. The market had lost 14 billion dollars of wealth. A quote from the Wall Street Journal said "STOCKS STEADY AFTER DECLINE Bankers State Support Continues- Spokesman Expresses View panic is Passing." Wall Street Journal, 10/30/29   
 

Causes of the Crash:

1. Stock were overvalued:
Some people thought that, according to P/E ratios and price/dividend ratios, stocks were overvalued. In 1929, stocks were trading at an average P/E of 60.

2. Margin buying:
At that time, you could put 10% down to buy stock. Thus if you wanted $10,000 in stock of GE, you would only need $1,000. Then you could make monthly payments to pay for the rest. Margin buying accounted for 5% of the total stock market value in 1929. This was not enough to drag the entire market down.

3. Fed Policy:
Adolph Miller was the new president of the Federal Reserve Board and he set out to tighten monetary policy. He aggressively raised interest rates on broker loans.

4. Terrible Banking Structure:
In the 1920's, banks were opening up at the rate of 4 to 5 per day. There were few federal restrictions to determine start-up capital needed for a new bank, or how much of its reserve could be lent. As a result, most of these banks were highly in debt. Banks were closing at the rate of 2 a day between 1923 and 1929. When banks moved to invest heavily in the stock market, it proved to be a catastrophe when the market crashed. By 1932, 40% of all banks were wiped out.

 Improvements After the Crash:

1. The Securities and Exchange Commission (SEC) was established to lay down the law and punish violators.

2. The Glass-Stegall Act was passed which banned any connection between commercial banks and investment banking. Over the past decade though, the fed and banking regulators have softened some of the Glass-Stegall Act.

3. FDIC was established to insure individual bank accounts for up to $100,000.

consequences:
After October 29, 1929 the market began to slowly mount a comeback. By the summer of 1930 the market was up 30% from the low of October 29, 1929. But no one could anticipate the nightmare that would follow. By July of 1932 the stock market would hit a low that made the 1929 crash look like minor malfunction. By the summer of 1932 the Dow had lost almost 89% of its value, which was more than 50% lower than the low of October 29, 1929. This drop erased almost every gain from the stock market since its birth in 1897. It would take the stock market about 30 years to make it back to the 1929 highs, though most investors would have recovered their losses in the 30's through dividend returns.