By definition, an investment must contain an element of risk. This is true of every investment including investing in the stock market.

Speaking about the stock market, we have to remember that a crash is always a possibility. It happened in 1929 and it may still happen again. However, after every event, the duty of a prudent investor is to look at the event and try to learn some valuable lessons from it.

In this case, some lessons from the stock market crash of 1929 include the ones discussed below.

1) Margin Trading Leads to Problems:

One of the major reasons for the stock market crash of 1929 was the high level of margin trading before the crash. This put a lot of pressure on the stock market. Eventually, most stock prices did not really reflect the facts on the ground. The lesson here is indubitable: margin trading is bad for the stock market and should be controlled.

2) Stock Prices Don't Reflect Healthy Companies:

There are a lot of things that can push up the price of a particular stock. Therefore, if a company has high stock prices, it does not follow that the company is solid. By the same token, a company might be vey sound and yet have very low stock prices.

3) Experts Don't Know it All:

Understand this basic fact: the so-called expert is not God. Experts can make mistakes and they do make mistakes. Two examples will suffice to illustrate this point. In October 1929, Professor Irving Fisher of Yale University stated that stock prices have reached what looks like a permanently high plateau. A few days after this expert declaration, the stock market crashed and a depression began that lasted over a decade. Again, in November 1929, the Harvard Economic society assured Americans that a severe depression like that of 1920 -21 is out side the range of probability. We are not facing a protracted liquidation. As it turned out, both sets of experts were wrong.

4) Don't Borrow Money to buy Stocks:

This is one lesson that people learned the hard way in the aftermath of the stock market crash in October 1929. All those who had invested heavily in the stock market suffered huge losses. But the hardest hit were those who borrowed money to buy stocks. Apart from the losses they sustained, they also had the problem of having to repay the money they had borrowed as well.

5) Gold is a Safe Investment:

After the stock market crash, people who had invested in gold found that out that they had made a very wise decision. The price of gold remained relatively stable and therefore investors in gold did not lose their money.

6) A Boom Precedes a Crash:

Another valuable lesson is simply this. Stock prices always rise very much shortly before a crash. For this reason, investors had better beware. When the stock market is really booming, it is a red flag. A crash may just be around the corner.

7) Don't put All Your Eggs in the Stock Market:

Even when stock market is really booming, you need to exercise some restraint and some self-discipline. Invest in bonds. Invest in land and invest in gold. Learn to put some of your money into other investments. That way, when the stock market crashes, you won't lose all your assets.

These are some valuable lessons from the stock market crash of 1929.

Learn more about this author, Emmanuel Osondu.
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