Investing for Beginners – How to Invest in Stocks?

Part 2: How to Invest in Stocks

Now that you’re ready to start investing in stocks, let’s take a look at the different strategies for investing in stocks. We’ve also provided further reading material to help give you a more in-depth look at each strategy.

11 Strategies for Investing in Stocks – Stock Investment Strategies for Beginners

1. Value investing

Value investors buy stocks when they sell at a discount to the intrinsic value of the company. In other words, they buy undervalued stocks. This strategy was popularized by Benjamin Graham and David Dodd in their 1934 book Security Analysis.

Further reading:

• What are Value Stocks?
• Easy Way to Understand What is Value Investing
• Fact, Fiction, and Value Investing
• Value Investing: Investing for Grown Ups
• Value Investing: Do or Do Not… There is No Try
• Value Investing – Why You Fail?
• How to Pick Stocks
• Warren Buffett Investment Advice

2. Growth investing

Growth investors focus on the growth of their capital by investing in growth stocks, which are stocks in companies with the potential for above-average growth. This strategy is based on capital appreciation, rather than dividend income, so it can be quite risky.

Further reading:

• Introduction to Growth Investing
• A Buffet Approach to Buying Growth Stocks
• Growth Stocks and Mutual Funds to Invest In

3. Income investing

Income investors choose stocks from companies that have steady streams of income.

Further reading:

• How the Income Investing Strategy Works
• Why Income Investing Works
• Stock-Picking Strategies: Income Investing

4. Momentum investing

Momentum investors focus on choosing stocks that have had high returns and are moving significantly in one direction.

Further reading:

• Introduction to Momentum Trading
• Momentum Investing
• Why Momentum Investing Works

5. GARP investing

GARP stands for Growth At A Reasonable Price. This strategy combines growth investing and value investing, as GARP investors choose stocks from companies that are undervalued but still have the potential for significant growth.

Further reading:

• Stock-Picking Strategies: GARP Investing
• Growth at Reasonable Price (GARP) Investing Strategy
• Want Growth and Value Shares? – Try the GARP Investing Strategy
• What is the GARP Strategy and is it Right for You
• GARP: Everyone Wants It, But Few Funds Hit the Mark

6. Fundamental investing

This strategy describes any process that involves investment decisions being made based on how well the company is doing. In other words, the idea that if the company does well, then the stock price will also do well.

Further reading:

• How to Make Money in the Stock Market
• Stock Analysis 101: Fundamental Analysis

7. Technical Analysis

Technical analysis, also known as behavioral investing, is based on psychological research and studies the supply and demand in stock markets.

More detailed information on technical analysis follows later in this document

Further reading:

• How to Make Money in the Stock Market
• Technical Analysis: Introduction
• Does Technical Trading Really Work? Technical Analysis 101

Other General Strategies:

8. Choose your stocks wisely

In other words, avoid relying on speculation to choose your stocks. Speculation is when you make stock investment decisions on a whim or because many others are making the same decision. Don’t just think that because everyone else is doing it that you should do it as well.

9. Know when to sell

Of course choosing stocks wisely is important, but knowing when it’s the best time to sell them is also important. Check out our article When to Sell Stocks – 9 Different Situations for advice on when you should sell your stocks.

10. Learn deflation investment strategies – just in case

Check out our article How to Invest During Deflation for tips to help you understand how deflation can affect the stock market.

11. Find a mentor

Having a mentor who you can go to for help is especially great for new stock investors.

12. Learn from the best stock investors

Learn from successful investors such as Warren Buffett, Benjamin Graham, Peter Lynch, and Jeremy Siegel. Check out Part 3 of this article for recommendations for books that these investors have written.

Part 3: How Not to Invest in Stocks

Knowing how not to invest in stocks is also important, especially for those who want to avoid common investing myths and mistakes that new stock investors tend to make. Here are some examples to help you avoid them:

5 Myths You Should Stop Believing

1. Investing in stocks is the same as gambling – This is one of the most common myths. Of course there is still risk involved, but, as you know from reading this article, investing in stocks is clearly not the same as gambling.

2. Only wealthy people can make money from stock investments – This is not true. You don’t need to have excessive amounts of wealth to be able to do well in the stock market. With the right stock broker and an effective investment strategy, you have just as much of a chance as wealthier investors do to become successful stock investors.

3. You can invest in stocks easily if you’ve already made other investments before – Just because you’ve made other investments before doesn’t mean that you know everything you need to know to invest in stocks. Make sure to do all of your research first, and consider hiring a financial planner to help if you don’t have the time or necessary knowledge to do it all on your own. Keep in mind that paying for a financial planner may be expensive, but it will cost you more if you start investing in stocks without having a solid understanding of how to do it.

4. Stocks that go up will eventually come back down – This is a myth because it doesn’t happen all the time. Sometimes stocks will stay up, and those who believe this myth may not have profited from it because they expected that it wouldn’t last.

5. You must always buy stocks when they’re low – Many investors, especially new ones, believe this myth. Keep in mind that even if you were to try to buy low and sell high, you still need to do your research so that you can make an informed decision based on more than just how low the cost is.

5 Mistakes to Avoid

1. Making emotionally-driven decisions – Don’t let emotions such as fear and greed influence your decisions when you invest in stocks. If you do, you will only increase your stress and be more likely to make poor decisions, so make sure to not exceed your risk tolerance. This is why determining your risk tolerance before you start investing is especially important, as it will help you to avoid this mistake.

2. Confusing cheap for being good value – Cheap doesn’t always mean better value. For example, a cheap stock broker has less fees, but they may not offer the high quality services and support that you may want.

3. Allowing herd mentality to influence your stock investment decisions – Don’t think that just because everyone else is doing it, you should as well. Herd mentality is quite common in stock investing decisions, so check out our article on Herd Mentality: Are You Being Set Up to Fail to make sure that you’re not making this mistake.

4. Rushing into decisions – If you’re still doing research and are not completely ready to buy stocks, don’t buy them. Even if something changes and it seems like you will miss a big opportunity if you don’t buy them now, you should still wait. Rushing into a decision before you’re certain that it’s the right decision could cause you more trouble later.

5. Protecting your bad choices – Don’t let loss aversion make you want to protect your bad choices. It may seem obvious that once you make a bad choice, you should fix it, but loss aversion makes investors feel that avoiding more losses is preferable to acquiring gains.

New stock investors often make mistakes because they look in the wrong places for investment advice, and don’t make the most of all the resources and tools available to gain an advantage.

So, we’ve gathered a list of the best resources for new stock investors, including books by some of the most well-known and successful investors, as well as online resources, tools, and simulators to test your skills. Check them out below – you’re sure to find something useful.

Part 4: Stock and Commodity Exchanges Around the World

Stock and commodity exchanges are exchange markets that are open platforms allowing sales and purchases of stocks and other financial products such as commodities and futures. This is a complex platform including derivatives and futures transactions. The stock and commodity exchanges provide many people and organizations investment tools to build wealth. These platforms also provide a worldwide marketplace for those selling stocks and commodities such as agriculture and precious metals.

Stocks

Stocks are considered equity shares or owning a share or piece of a company. This type of ownership is known as equity ownership, in other words, owning a piece of a corporation’s equity. The corporation raises capital by selling units or portions of the company and its profit to shareholders. In turn, those who purchase these units are partial owners of the corporation.

History of Stock Exchanges

There are many debates between scholars regarding the first appearance of a stock market or exchange in history. Many scholars date the first occurrence of a stock exchange back to ancient times. Writings have been found claiming Roman stock ownership of government leases was very common around the 2^nd century BC. The history of the modern stock exchange has been traced to The Dutch East India Market in the very early 1600s. This eventually led to the London Stock Exchange which was the model for the largest stock exchange today, The New York Stock Exchange, Listed below are great informational guides to the history of the world’s stock exchanges:

• Ancient versions of a stock exchange: Ulrike Malmendier, a well respected economist debates the existence of an ancient version of the stock market in Rome in a detailed 44 page paper written for Yale University.
• The First Modern Stock Exchange: The Dutch East India sold its first shares in 1602 making it the first modern stock exchange.
• History of the US Stock Exchange: Signing the Buttonwood Agreement in 1792 was the beginning of the US Stock Exchange.
• World Stock Exchange Today: The World Stock Exchange is an association comprised of 52 exchanges around the world.

Key Terms

There are many stock market terms when discussing stocks and the stock market that have specific meaning in the financial and investment world. Understanding the meaning of these key terms will help define the concepts when learning about the stock market. There are many terms that have different meanings outside the financial arena. It is important to know the meaning as it relates to the stock market.

• Bonds: Offers information on the different types of bonds and their markets.
• Dividends: Outlines the functions of cash and stock dividends and what the ramifications of each can be on shareholders and corporations.
• Enterprise Value: Provides descriptive meaning of enterprise value, formula for calculating the enterprise value of an organization, and when this is used in the stock market.
• Stock Valuation: The purpose of valuing stock can be beneficial to both the shareholder and corporation based on current and future performance.
• Asset Allocation: A description of asset allocation and a guide to how this can reduce risk.

Why Do We Need Stock Exchanges

A stock exchange provides a platform for buyers to purchase stock from many different companies while this exchange platform offers a marketplace for sellers to find buyers to purchase their stock in a relatively short amount of time. Without a stock exchange, buyers and sellers of stocks would reply on other archaic methods such as classified advertisements, which offer limited exposure to potential buyers and sellers. In short, a stock exchange provides an easy solution for all entities involved. There is a dynamic benefit for everyone involved in this type of marketplace including the economic well being of countries.

• Why do We Need the Stock Exchange: Provides an insight into why we need the Stock Exchange and the benefits these types of platforms provide to the financial health of the world.
• Why do we need a stockbroker: Provides steps to finding the right stock broker or investment professional.
• Benefits to Buyers and Sellers of Shares: Stock markets allow buyers and sellers of stock to connect through a stock market and make transactions that would otherwise not be an option.

Stock Exchange Guide: Five Major Stock Exchanges in the World

The world’s five largest stock exchanges account for the majority of the globe’s financial transactions. These five major stock exchanges have seen many changes in the past with mergers and growths. The leaders in the world’s financial sector include the United States, Japan, the United Kingdom, and the People’s Republic of China. There are many active stock exchanges around the world with a smaller number of companies listed who have a lower overall market capitalization compared to the five largest exchanges world-wide.

• New York Stock Exchange (NYSE): The largest stock exchange in the world, the NYSE has been traced as far back as 1792.
• NASDAQ:An American electronic stock exchange which opened in 1971 and was the world‘s first electronic stock exchange.
• Tokyo Stock Exchange: Originally open in 1878 as a way for the government to trade bonds but currently operates as one of the worlds largest stock markets.
• London Stock Exchange: Trading began in a coffee houses in London during the 17^th century and led to the opening of the London Stock Exchange.
• Hong Kong Stock Exchange: Originally established in the 1800, Hong Kong Stock Exchange merged with several other exchanges and has had the most growth since the 1986 mergers.

Process of a Company Being Listed on an Exchange

In order for a company to be listed on a stock exchange, basic requirements must be met. Each stock exchange has their won individual requirements however there are common requirements between most major stock exchanges. Each requirement must be met before a company is listed. Once listed on a major exchange, shares are available for purchase.

• Application for Listing: Once the eligibility of a listing is determined, the application process begins.
• Minimum Requirement for Market Capitalization: There are different minimum market capitalization requirements for each stock exchange. Offers a sample of what NASDAQ requires.

Commodities Exchange

Commodities Exchanges are for investors and commodity buyers go to purchase futures, derivatives and commodities for trading or profit. There are a wide variety of raw materials, such as coffee, cotton, and oil, across the world’s commodity exchanges. While investors can buy shares in a company on a stock exchange, for example oil stocks, on a commodity exchange investors are able invest in the actual commodity, such as oil, directly. Commodities exchanges have been in existence as far back as history can tell. Contracts for these exchanges are what sets the modern exchange apart from the historical exchanges.

History of Commodities Exchanges

During the early 12^th century merchants began making contracts for futures similar to what is available on the commodity exchanges today. The purchases were made by the buyers before the goods were delivered, thus ensuring a sale when traveling with large loads of commodities along dangerous routes. This would lower the risk of traveling the dangerous route by ensuring the sale. Before the futures contract were implemented, the risk was oftentimes much too high.

• Ancient Sumerian Trade Contracts: During the early Bronze Age, Sumerians would trade sheep pigs, and other commodities. This was their currency, and oftentimes these early traders would create contracts for future trades.
• Chicago Mercantile Market: A brief history on the Chicago Mercantile Market, which was originally called The Chicago Butter and Egg Group.
• Regulators of Commodity Exchange Market: Established organization in 1974 that regulates the Commodities Exchange in the US to protect the public from fraud.

Commodities Key Terms

There are many terms used in commodities that are essential to understanding the basis of the commodities industry. Understanding the key terms used in commodities will give a broad introduction to commodities. These are specialized terms found in phrases unique to this industry.

• Commodity: Offers understanding of commodities and glossary of terms in the commodities industry.
• Raw Materials: A list of links that provide information on raw materials and their supply and demand models as well as price indices.
• Intercontinental Exchange: A global market operating internet based trades in the futures market
• Charting: Explanation of terms such as charting, which is a technique of analyzing price movement.

Examples of Commodities

Commodities are essential products that are natural substances the earth produces. They consist primarily of raw materials. Particular commodities are traded or sold when there is a demand for them. The demand is typically what drives the price for a particular commodity.

• Grains: Includes information on the different types of grains and basic commodities marketing for grains.
• Gold: Commodities market for gold and market price determinations.
• Nickel: Article explaining the evaluation and pricing of the worth of nickel.
• Silver: Latest silver news and pricing information and financial trends.
• Copper: Statistics and information about copper include pricing on commodities exchanges.
• Cotton: National Cotton Council of America offers latest cotton futures and activity in the cotton industry.
• Crude Oil: Weekly view of crude oil and its worldwide performance on the commodities exchange.
• Coal: Provides information on the commodities trading of coal.

Five Largest Commodity Exchanges Around the World

Commodity exchanges began as paper contract transactions. Modern day commodities exchange markets have developed into a complex market. The world’s largest commodities exchanges deal in trillions of dollars of exchange commodities. The highest performing and largest worldwide commodities are listed below.

• New York Mercantile Exchange: The world’s largest physical commodities exchange dealing in futures.
• London Metal Exchange: Offers an exchange platform for metals such as gold, silver, aluminum and copper.
• Chicago Mercantile Exchange: The first US commodities exchange market. The Chicago Mercantile Exchange is still one of the world’s largest commodities platforms.
• Chicago Board of Trade: Founded in 1973 as the first US options exchange, Chicago Board of Trade has a complex trading system and is still a world leader in options trading.
• Shanghai Metals Exchange: This is the largest metal exchange in China and one of the largest in the world.

Part 5: Starting Early: Investing for Teens

Saving money for retirement and other important expenses as you get older can be difficult, especially when you’re trying to live it up during the teenage years. When we are young, thinking about our monetary situation for the future is often the last thing on our minds. Having enough money to get through your golden years and take care of your family is definitely something you will be concerned about as you get older. The fact is, the sooner you start investing in stocks, the more money you’ll have to live on as you age. There are many different forms of investing, and most of them can offer you a great return if you do it wisely. While investing for teens can be a bit intimidating, it’s important to understand the various types of investments available and what you can hope to gain from them.

Stocks and bonds are one of the most popular forms of investing. Simply put, you purchase stocks and/or bonds on stock exchanges, and they can later be sold at a profit, which is yours to keep. The younger you are, the more diversified, or different, your stock portfolio should be. Younger people can take higher risks because they still have time to re-invest if something goes wrong. The higher the risk of any kind of investment, usually the greater the return will be. Bonds are similar to stocks except that a bond is more like a small loan being given to a person, corporation, or government project. Over time, the bond earns interest and when it has lived out its full investment life, you reap the return of the interest that has been accrued on the amount of the bond. Whether you decide to work with stocks or bonds, it’s always a good idea to enlist the help of a professional who can help guide you through the steps of purchasing and selling stocks.

Another well-known and popular form of investing is known as an IRA account. An IRA account is also known as an Individual Retirement Account. This form of investing is usually begun once you have a job that offers some kind of 401(k) plan. You can fund an IRA with your own money, or your company might contribute. If you do not have a job, you can still start an IRA and then continue the investment process once you enter a career. Many companies will match your contributions or help contribute a certain percentage of your overall contribution each month. The two main IRA types are traditional and Roth. They differ because of how the money is taxed, and it is a good idea to find out the terms of an IRA before you decide to invest in one. This kind of investment is easy and there is very little to no risk involved.

There are many other types of investing you can try, and each one has its own fine print, so always ask questions before you do anything with your money. Try out a few virtual stock market game to get a good feel for what dealing with stocks is like. Just saving money is great, but it does not offer much, if any, profit like an investment can. Being patient is the key to seeing the benefits of an investment plan, so remember that while it seems like you’re giving your money away at first, it will be well worth it in the end when you get that final return on all of your hard work and money invested. Not only will you have money for the future, but investing can be fun as well. Check with your parents and find out if they have already started some kind of investment plan for you. If so, you can always contribute to that and watch your money grow over time.

Resources to Start Investing in Stocks for Teens

Before you start investing in stocks, you need to educate yourself about the investment process. It is as easy to lose money investing in the stock market as it is to make money in stocks. For more information about smart investing, please refer to the following websites:

• The Teen Years: Investing
• The Mint: Investing Tips for Teens
• Virtual Stock Exchange
• Basics of Stock Market and Exchange
• How Much Money Should I Invest?
• Five Tips for Young Investors
• Beginner’s Guide to Investing
• Teen Investor Resources
• Practical Money Skills for Life
• Virtual Stock Exchange Games
• Resources for Money and Investing
• The Young Investor
• Putting Teens on the Retirement Fast Track
• The Magic of Investing Early

Part 6: Stock Market Game

Stock market game and simulations allow students a valuable and fun opportunity to learn all about the process of making good investments and begin a good foundation for sound money management. These games are designed not only to be used in mathematics and economics but also give valuable lessons in social studies, language arts, technology and even science classes. It helps students expand their knowledge and gain new skills in investing, saving, communication, cooperation, research and decision making.

Youth Benefits of the Stock Market Game

The main benefit of the stock market game is that students who take part in it earn higher scores on personal finance exams than those who do not play it. More than one learning style is encouraged as both students and teachers become acquainted with the rules of the language of saving and investing money. Students are also able to carry out their own research at a comfortable level as teachers get to customize classroom lessons. Being a team-based learning exercise, it also allows cooperation on each part of the student. Along with classroom learning activities is the use of interdisciplinary teaching to extend the growth of a portfolio in online simulated securities trading as it allows students to use their research done online.

Game Process

In order to learn the ins and outs of investing in the stock market, students research can be done through the internet, magazines and newspapers. For classrooms without internet access, a toll-free fax machine is used. It is advisable that there are fewer students on each team so each student can interact more with the simulation. For seven days a week and at any time of the day or night, classes are able to trade.

There are two popular stock market games for high school students across America. These are the Stock Market Game and the National Stock Market Simulation. These games are played using virtual money as each class needs it to make simulated sales and purchases of stocks plus mutual funds and bonds. There is a specified amount of time to complete the classroom portfolio.

The Stock Market Game exposes students within smaller budgets to increased educational standards. Meanwhile, the National Stock Market Simulation runs for 10 weeks which allows classes to ask orders for U.S. stocks and make real-time bids. Each student can view their performance as well as ranking in real time as there is a streaming portfolio update. According to Stock Market Simulations, both students and classes can use market, stop and limit orders while they play.

Students with the largest total equity in their portfolio at the end of a session are the winners. Prizes are usually awarded to the top three preforming teams. Rewards range anywhere from actual stock market shares to dinner certificates to T-shirts and trophies.

Stock Market Game Resources for Teachers

• Stock Market Game^TM: A very popular and free stock market game from Wall Street Survivor to learn and practice investment planning under real market conditions with a $100,000 in simulated starting capital.
• TeachNet: The Stock Market Game: Includes five lesson plans in conducting a modified stock market game.
• The Good, The Bad and the Ugly (link inactive): An integrated math/history lesson plan that gives emphasis on the Stock Market Crash.
• The Capital Market: An online quiz about the Capital Market.
• Who Owns McDonald’s?: An interesting lesson plan to introduce students on the concept of being owners of a business through purchasing stock.
• The New York Stock Market: Includes information about the New York Stock Market which opened on Wall Street on January 4, 1865.
• Your Chance to Make Millions in the Stock Market: A three-part lesson plan that takes students through an interactive historical simulation and investments decisions.
• The Crash of 1929: Includes historical information on “Black Tuesday” wherein almost 31 points was lost in the Dow Jones Industrial Average.
• Investment Risk Tolerance Quiz: A quiz developed by two university personal finance professors to contribute to a study on measuring financial risk tolerance.
• Great Nebraskan National Economics Test: An online quiz to measure basic economic principles and facts.
• Understanding Portfolios: This quiz on how to build your portfolio measures how well the students understood the lesson.
• The Balance Sheet and Market Indexes: A quiz in Foundations of Business Administration made by Prof. Bauer-Ramazani for freshman college students.
• The Stock Market Game^(TM): A site where students can log-in and learn about stock markets while playing.
• Can You Be the Next Market Guru? (link inactive): An online flash game wherein students can learn how to make money in stocks by investing in imaginary stocks.
• Fed Chairman Game: An online game where students have the chance to take charge of a simulated economy.

Stock Market Game Resources for Students

• simCEO: An online simulation game where students can create their own companies.
• FDIC Learning Bank: A site dedicated to give comprehensive information on the Federal Deposit Insurance Corporation.
• Math in Daily Life: A comprehensive look at how math affects students.
• NYSE Made Easy: An article to help students learn simple terms associated with the New York Stock Exchange.
• Feed the Pig: A site to learn how to take control of personal finances.
• What is the Stock Market?: Gives an overview of what stock market is.
• Economic Articles for Students: A list of websites students can use to keep up with the economic news and concepts.
• What’s Up with Wall Street?: A page dedicated to learn the basics about Wall Street.
• The Hows of Taxes: Includes 14 modules to give students a background on tax concepts.

Photo by: Lance Ball

Part 7: The Great Depression, Stock Market Crash and Beyond

What Caused the Great Depression?

The world seems to be crashing on you and there is no place to run. This could be a description of what people felt during the Wall Street Crash of 1929 (October 1929) which was also called as the Great Crash, and the Stock Market Crash of 1929. This disaster was the start of the Great Depression, which lasted for 12 years and ended at the onset of World War II in 1941.

Stock Market Crash of 1929

October of 1929 saw the collapse of the stock and commodity market, which obliterated 40 percent of the value of common paper stock, decimating the investment portfolio of many. This represented only a single happening as the tragedy continued and more and more people became penniless, which rendered them helpless in providing for the needs of their families. Folks were pleading for money and food for their children as they aimlessly roamed the streets. Multitude of businesses was closed and banks were declining. By 1932, an average of one out of four Americans were unemployed. Despair and hopelessness were mirrored on the faces of the people for they saw no hope in sight as all kinds of bad news filled the air.

• 1^st Timeline of the Stock Market Crash

The Great Depression and the New Deal

In response to the devastating effect of the Great Depression, a series of economic programs was adapted by the US in 1933-36. Called the New Deal, the program was enacted by Congress during the 1^st term of President Franklin Delano Roosevelt (1933-37). It concentrated on the 3 Rs: relief, recovery and reform. It means relief for the poor and the jobless, recovery of the economy back to normal and reform of the financial system to avoid depression and encourage people to invest in the stock market again.

Aside from the 3 R’s, the New Deal started a political realignment which made the Democratic Party the majority. This party based its platform on liberal ideas, big city machines and empowering the labor unions, ethnic minorities and the white South. Some of the opposition Republicans supported the program while others were non-supportive claiming that such program is destructive to business and development.

• 3 R’s of the New Deal
• Mythology of the New Deal
• Great Depression and the New Deal
• Was the New Deal Successful?

Unemployment During the Great Depression

By the time that Franklin Delano Roosevelt was inaugurated as President in 1933, one fourth of the entire American population was unemployed. Consumers’ confidence was low due to the stock market crash; they stopped purchasing goods from factories and low production led to workers’ mass lay-off. The jobless had almost no money left to spend leading businesses to gradually decline. At the peak of the Great Depression, there were more than 13 million people unemployed. More and more people rely on the government and charity to feed their families.

Measures to remedy unemployment:

1. The Civilian Conservation Corps (CCC) offered young men between 18 and 25 years to work in camps administered by the army.

2. A Public Works Administration (PWA) gave employment for skilled construction workers on a wide variety of projects.

3. The Federal Emergency Relief Administration (FERA) distributed direct relief to hundreds of thousands of people, usually in the form of direct payments.

• Unemployment during the Great Depression
• Unemployment during the Great Depression
• Why Unemployment in the Great Depression?

Agriculture

Agriculture was greatly affected during the Great Depression. After the massive crash of the stock market, prices were declining very fast. In the spring of 1933, the agricultural sector was on the verge of disaster. In the United States, 25 percent of farmers and 37 percent of all nonfarm workers were completely jobless. Some people had nothing to eat; many others lost their farms and homes. Homeless individuals climbed aboard freight trains that were crisscrossing the nation. Cotton farmers dispossessed of their farms; packed their bags and drove their dilapidated Model Ts all the way to California hoping that the posters about plentiful jobs were true.

Some measures introduced:

1. Agricultural Adjustment Act (AAA) gave economic aid to farmers.

2. Commodity Credit Corporation purchased goods to be stored until prices will rise.

3. Soil Conservation Service was another government agency providing relief to farmers.

The Great Depression transformed the lives of people who lived and farmed on the Great Plains altering America’s way of life. Government funding was available to help displaced people endure the Great Depression; however, what took place altered the future of agriculture for years to come. Some government programs helped them to live through the 1930s but this changed affected the future of agriculture forever. Farmers have to contend with the dust, insects, heat of summer and cold of winter. Families are deprived of heat, light, indoor bathrooms and other facilities; and the necessity of raising their own food.

In the ‘40’s, 2.5 million people left the Plains states, which was marked as the biggest migration in American history. They consisted of farmers, professionals, retailers, and others. Eventually, they were competing for seasonal job with very low pay. Many ended up performing seasonal jobs like picking crops at extremely low wages. By 1940, nearly six million farmers were receiving federal subsidies.

• Farming during the Great Depression
• Cities and Farms in 1930’s
• Dust Bowl

Industry and Labor

Industry suffered with the economic crash of 1929 to 1932. In the United States, the indicator of industrial production dropped from one hundred in 1929 to fifty-five in 1932, the largest plunge compared with all previous industrial economies. During 1930, President Herbert Hoover motivated industrialists to maintain wages, to schedule working hours, and to provide an investment plan to tide workers during the expected short duration of the recession

Some measures created were:

1. In 1933, The National Recovery Administration (NRA) was established and with the help of the National Industrial Recovery Act (NIRA), tried to control heated competition by establishing codes of fair competitive practice to produce more employment and encourage more buying.

2. The NIRA secured the right to bargain as a collective group through the use of labor unions to represent the individual workers.

3. National Labor Relations Act disallowed employers from unfairly interfering with union activities; with the National Labor Relations Board which supervises bargaining and negotiation of the organization, the election of organization administrators, and makes sure that workers have the right to choose the organization that represents them in dealings with employers.

• Economics of Depression
• Effects of Great Depression on Economy and Labor
• Economy Hits Bottom

The Second New Deal

In the economic planning aspect, the First New Deal was inadequate so the government and the private sector deemed it necessary to move to the Second New Deal. This program was a compilation of legislation in 1935 focusing on the goal of economic security for all.

Some relevant points of the Second New Deal are:

1.Emergency Relief Appropriation Program Act which required government to be more aggressive in giving employment, to be labor intensive, pay a security wage and not compete with the private sector. It also created these acts: Rural Electrification Administration, National Youth Administration, Resettlement Administration and Work Progress Administration.

2. Social Security had better and more workable plans added.

3. Wagner National Labor Relations Act extended long term security to labor. It was described as the balance of power between American capital and labor.

Despite the serves of legislative initiatives, the Depression continued. To relieve the pressure, President Roosevelt proposed a new set of economic and social measures intended to fight poverty, create more work for the unemployed, and provide a social safety net.

• Summary of the Second New Deal
• New Deal Cultural Program
• Second New Deal Program
• Roosevelt and the New Second Deal

A New Coalition

Roosevelt won a second victory in 1936 over his Republican opponent. Taking 60% of the votes, he was able to form broad new coalition with the Democratic Party, labor group, farmers community, urban, ethnic, Afro-American and the traditional Democratic in the south. The republican was supported by the business and middle class citizens from small towns and suburbs. His formidable political alliance withstood several decades.

The years from 1932 to 1938 was marked with widespread public debate on the relevance of New Deal policies to the nation’s political and economic life. The citizens wanted the government to assume the responsibility for the welfare of ordinary people. The New Deal laid down the foundations of the modern welfare state in the United States and President Roosevelt, had established a new standard of mass leadership. At the onset of World War II, the Great Depression came to its final end.

• New Deal Coalition of Franklin Delano Roosevelt
• FDR’s New Deal Coalition
• What Ended the Great Depression?

Miscellaneous Resources: Refer to these links for more insights about The Great Depression:

• Interesting Facts about Great Depression
• Timeline of the Great Depression
• A Photo Essay
• Social Effects during the Great Depression

Image: Wikimedia Commons