Economic fundamentals were overlooked from "summary" of The Great Crash 1929 by John Kenneth Galbraith
The most striking and significant oversight of the period before the Great Crash of 1929 was the failure to adequately consider economic fundamentals. As stock prices soared to dizzying heights, there was a pervasive sense of euphoria among investors and speculators alike. However, this exuberance was not grounded in a thorough analysis of the underlying economic conditions. One of the fundamental principles of investing is to carefully evaluate the financial health of companies before making investment decisions. In the years leading up to the crash, this principle was largely ignored in favor of speculative trading based on the expectation of ever-increasing stock prices. As a result, many investors were caught off guard when the market inevitably turned. Additionally, the prevailing attitude of the time was one of unwavering optimism and confidence in the market's ability to continue its upward trajectory indefinitely. This irrational exuberance led many investors to overlook warning signs and red flags that should have prompted a more cautious approach. Furthermore, the financial instruments and practices that were popular at the time, such as buying on margin and trading in unregulated over-the-counter markets, only served to exacerbate the situation. These practices introduced significant risk into the market and allowed for the rapid transmission of panic and uncertainty when the crash finally occurred. In hindsight, it is clear that a more prudent and realistic assessment of economic fundamentals could have helped to prevent the catastrophic consequences of the Great Crash. By failing to take into account the underlying economic realities, investors and speculators set themselves up for a devastating fall when the market inevitably corrected itself.
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