How a Stock Market Crashes

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A stock market crash is a result of an imbalance between buyers and sellers, usually noted by a disappearance of buyers. Learn how a crash differs from a declining market with help from a personal asset manager in this free video on investing in the stock market and money management.

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Video Transcript

Hello I'm Roger Groh with Groh Asset Management. Today we are here to talk a little bit about what causes stock markets to crash. Well essentially it is an imbalance between buyers and sellers. In a normal declining market there is a slight imbalance. There are slightly more sellers than buyers and you get a gradual decline. In a crash the buyers disappear and as a result the sellers are forced to sell out at that moment at ridiculously low prices. For anybody that was here back in 1987 or perhaps 1982 or in earlier years when there were traumatic one day drops in the overall markets you know what I mean. Now in the past especially in 1987 computer programs had an awful lot to do with those crashes. They accentuated the damage but in the end it is a mismatch between buyers and sellers. Other markets where it has happened well this year if you had been in China you have experienced it. Been in Hong Kong at all? The recent surprise though is that daily there are markets going up and down 3, 4, 5% that in the past would have been nonheard of, those would have been major market moves but today we are looking at them as being more normal than anything. So that's a little bit about stock market crashes and I'm Roger Groh.

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