Today we are going to talk about the stock market. Some people argue about what time or when was the first corporate stock traded. Some say it was the Dutch East India Company founded in 1602. Others believe that the first trade was ancient Rome. If you would have been alive in 1602 or if you could take a time machine back to that time of the Dutch East India Company it would have been good to invest in that company. The company paid an average dividend of over 16% from 1602 to 1650. That is pretty good.
Purpose of the Stock Market
The stock market is a way for companies to raise capital for expansion thru selling shares to investors. Imagine the founder of Apple going door to door asking for investors into apple. That would not work to good. There are different ways to raise capital. One way is to go to a bank and borrow the money in the form of a loan.
Another way is go to the public and sell shares to the public. This is the place where ordinary people have the opportunity to buy shares in a company.
If you had a company and you needed capital one way to do that is take the company public.
Imagine if you took the time machine that I talked about earlier (not sure why I’m sticking with the time machine example but anyway) you go back to the past. You are a supply business for miners in the great gold rush. Your products are selling like crazy. You know that you can sell much more. The problem is you don’t have the funds you need to buy the great volume of supplies that you need. One option is to take your company public and let outside investors buy a piece of your company. This will give you the capital to buy the volume of products that you need. In return, you will pay dividends to the investor and the investor will be able to sell their appreciated stock for a profit when the company grows.
Now take that business along with the horse and buggy company, the tent company, the pistol company, and the horse plow company and you have a stock market. Obviously, it is a little more complicated than that but you get the point.
The Stock Market in the 50’s
Now we will get in our time machine and take it to the 50’s. Let’s head to the New York Stock Exchange. What you would find is something very different from what you see today. If you want to make a trade you have to call a broker. A side thought why do they call someone who is supposed to make you money a broker?
The process of trading back then was more time-consuming than it is today. Commissions were higher back then.
Technology was limited back then so when a trade was placed it took time between when it was placed and when it was filled. Before 1953 the daily trading volume of the NYSE was below 1 million.
The market was much different back then. By the 1970’s mutual funds began to grow in popularity. Also, electronic trading began in the 70’s. Investors held the stock in electronic form instead of a physical stock.
By 1982 the daily trading volume on the NYSE reached 100 million. Many things have changed for investors and traders in the market.
The Stock Market Today
Today the market is much different than it was even 10 years ago. The time to get in the market is instantaneous. There is no waiting on a broker. If you have an account you can make a trade within seconds.
The market has changed in many ways for the good to the small-time trader. I can remember the first time I saw google maps with the aerial view. It was amazing that I could zoom down on my house and see what cars were in the driveway on the day they took the picture. This was awesome new technology in my mind. The truth is the technology was not new. The government has had the ability to see aerial shots like that for years.
It was just not available to the common man. The market is similar in that aspect. In the past, the market worked out good for big or institutional investors. The little guy got left behind.
Today the average joe can trade the market. Now he might have a little disadvantage but the gap is narrower than it has ever been.
So, todays Stock market is much better for the little guy than ever before. The market is not something to be afraid of but something to learn and be a part of.