The market that everyone thought would keep rising

The 1920s were a boom time in the United States, and share prices rose fast. Many people bought shares "on margin", paying a small part of the price and borrowing the rest from brokers. The Dow Jones Industrial Average reached about 381 in early September 1929.

In October prices started falling. On Thursday 24 October, known as Black Thursday, panic selling hit the market. On Tuesday 29 October, Black Tuesday, prices fell sharply again. People who had borrowed to buy shares were forced to sell, which pushed prices down further.

The decline continued for years. In July 1932 the Dow hit about 41, nearly 90% below its 1929 peak. The crash was one of the causes of the Great Depression, along with bank failures and policy mistakes in the years that followed.

Rising prices made borrowing to buy shares look safe, and the more people did it, the higher prices went. When prices turned, the same borrowing worked in reverse, forcing sales that made the fall worse. Many people had reasoned from recent years alone: prices had gone up, so they would keep going up.

The AI angle: a forecast built only from recent trends will assume the trend continues. AI models trained on a run of good years can make the same mistake, so ask what happens if the trend breaks.

The idea behind this caseLesson: How machines learn →

1. 1Be careful of borrowing to invest, since losses grow faster than gains.
2. 2Ask whether a rising price reflects real value or just more people buying.
3. 3Test any plan against the case where a long trend suddenly reverses.
4. 4Keep savings you need in safe places, away from fast-moving markets.