The stock market: a place to invest - Essay Example

The two most infamous market crashes were the market crash of 1929 referred too as Black Monday, and the Wall Street collapse of 1987. Recently we experienced a market crash as consequence of the global economic recession. In this paper we analyzed the stock market to justify why it is still a good place to invest and provide reasons why the prices stock have gone down. In 2008 the US economy entered into a recession as a consequence of global banking that occurred after the housing market burst.

Speculative forces in the housing market affected the banking industry because the equity of the homes went down a lot. The instability in the crude oil market which climbed to world record numbers ($147 per barrel) to plummet down to as $35 less than a year later. The stock market was also affected the recession and the prices of common stock went down a lot as well. Appendix A shows an illustration of the price movement in the Dow Jones Industrial Average (DJIA) during the last year. The DJIA is an index that includes the biggest companies from each industrial sector, thus many analyst consider the index as an illustration of the market as a whole.

During the last year investors has seen the value of the index gone down as much as 6000, which is a tremendous price swing. The global recession is the primary reason the prices of public companies in the stock market has gone down so much. There has been major layoffs from many multinational firms, some company such as General Motors have completely restructured their firm and have seek bankruptcy protection in order to stay alive. Despite the wild price swings the stock market has experienced during the last year it is still a great place to invest in.

Common stocks by nature are considered a high risk investment. High risk investment propositions imply that the rewards can be very good, but the danger of losing your investment is also an imminent risk that the investor must be willing to accept before entering into