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Stock Market Investing: Lessons from History

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Consumer Knowledge and Financial Decisions

Part of the book series: International Series on Consumer Science ((ISCS))

Abstract

Stock market investments are important to investors in order to achieve gains higher than those possible from bonds or cash investments. After a decade of seeing the stock market increase in the 1990s, investors saw a period of turmoil – 3 years of a down market, then a good year, then several average years, and then a financial crisis and severe market losses. Is history repeating itself? What is an investor to do? This chapter looks at past financial crises and the most recent episode and attempts to answer these questions.

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Notes

  1. 1.

    Co-author of the Glass-Steagall Banking Act, a major piece of legislation regulating the banks after the stock market crash of 1929.

  2. 2.

    The number of banks at the end of 1933 was a little over half the number operating in 1929.

  3. 3.

    In early 1933, about 45% of farm owners were behind in their mortgage payments.

  4. 4.

    These returns are positive before inflation, so the negative real return is due to inflation.

  5. 5.

    While the U.S. experienced strong economic growth during World War II, most of the rest of the world did not. Barro (2009) found that World War II was the worst macroeconomic event in the period studied.

  6. 6.

    The equity risk premium is the extra return above the risk-free return. Estimates of the equity risk premium generally range from 4% to 8%.

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Author information

Authors and Affiliations

  1. Department of Finance , Robert H. Smith School of Business, University of Maryland, Van Munching Hall, College Park, MD, 20742, USA

    Susan White

Authors
  1. Susan White
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Correspondence to Susan White .

Editor information

Editors and Affiliations

  1. Dept. Economics, University of Maryland, Baltimore County, Hilltop Circle 1000, Baltimore, 21250, Maryland, USA

    Douglas J. Lamdin

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White, S. (2011). Stock Market Investing: Lessons from History. In: Lamdin, D. (eds) Consumer Knowledge and Financial Decisions. International Series on Consumer Science. Springer, New York, NY. https://doi.org/10.1007/978-1-4614-0475-0_19

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