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What is a Stock Market Crash? What is Bear Market?

What is a Stock Market Crash?

A Stock Market Crash is a doubled-digit fall of stocks and eventually resulting in Indices' fall due to fear of the economic situation getting weak. This fear causes panic among investors so they start selling their holdings which crashes the market. Crashes make an impact on the economy. In stock market crashes significant amount of wealth is abolished. In stock prices faces huge fall(s) in a day or days like the one seen in recent times like the COVID - 19  Stock Market Crash, Sensex on 23 March 2021 saw a fall of 3,934 points(13.15%), and Nifty 50 fell 1,135 points(12.98%), Indices in these days saw huge falls because o which they ended at their lowest levels since 2016. But in less than 8 Months markets recovered.

COVID-19 Market Crash

COVID - 19 Stock Market Crash can be said as one of the biggest stock market crashes in history. Indian Incides(mainly Nifty 50 and Sensex) fell about 33% - 35%. 41 lakh in youth in India lost jobs. The unemployment rate surged to 37.9% due to COVID. Out of these most of the people were from Agriculture and Construction Sector. India approximately lost 23.9% in GDP(Gross Domestic Product) in the first quarter of 2021. Markets recovered very quickly and stocks and indices gave handsome returns. The Real Estate, Construction, Hospitality, and Entertainment sectors were hit hard due to COVID as they were not in operations. Healthcare, FMCG, and IT(Information Technology) can be said as winner sectors as they were in operations. Panic was created among investors due to fear of closing of operations, weakening of the economic situation.

2008 US Financial Crises

Before 2006 Real Estate prices were rising and touching the sky but 2006 saw the first fall in Real Estate prices in the decade. Price rise happened due to more number of buyers in Real Estate, and they were financed by banks. It's not the problem, the problem here is that financial institutions were financing the buyers. Due to the allowance of banks to invest in derivatives related to housing because of some deregularities in the system. Investing in derivatives allowed them to make more profits which lead them to give unsecured loans to customers. Loans were given in huge amounts and were even given without seeing the capability of the borrower to pay the loan. Loans were given even 100% of the amount of the real estate. But when banks realized their losses and stopped lending money to each other. So when the borrowers defaulted on their house loans, the banks put them on sale and due to a huge number of real estate properties on sale the real estate market crashed. After decades of the Great Depression, 1929 such a huge market crash took place.





Frequently Asked Questions:

How to avoid loss of money during the crash?

The biggest problem we face is that seeing our holdings in red and the problem here is our temptation to sell our holdings So first of all control your temptation to sell your holding during market crashes, during market crashes panic will be created among investors but we don't have to be a part of this panic and control our emotions.

Now the question arises what to do during a market crash to earn handsome returns?

There is nothing complex to do during market crashes it's as simple as investing and holding your current holdings. Yes, it's just that you need to pick quality companies during a crash and just to hold your current holdings

Why crashes are the best time to invest? 

Crashes always seem to be the best opportunity for long-term investors. Crashes are the best time to invest as quality companies are available at reasonable prices.

Will crashes like 2008 and 2020 can occur again?

It is nearly impossible to predict that crashes like 2020 and 2008 can occur again, for most of us. We always hear predictions by different people about market crashes that when can market crash. But we should avoid watching the news much during crashes.







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