The history of the stock market is as fascinating as the stocks that build investor wealth.
Like investing, the history of the stock market had its ups and down. Moreover, the rise of the stock market was not as straightforward as it is today. For instance, its early roots begin with simple trading that started among traders. Thereafter, the commercial market saw the transition from simple trade to stock market.
If you are as intrigued as us as by what sparked the current existence of stock markets as it is today, we take you on a brief journey of discovering it. In particular, we touch upon how the history of the stock market has shaped the current stock market. We'll also answer questions on the world’s first publicly traded company. Read on to know more.
A Bit About the History of the Stock Market
The history of the stock market has inspired many investors and traders to try their luck in trading. And, while some have found overnight success, the patient trader has also reaped equal benefits. So, here is what has shaped the history of the stock market to what it is today.
What is a Stock Market?
A stock market is a formal place where the shares of public limited companies are sold. For instance, it consists of the primary and secondary market where the business takes place. In particular, in the primary market, as an investor, you get to buy stocks (IPO) Initial Public Offering from companies. Also, the respective bodies in that country regulate the secondary market.
The New York Stock Exchange (NYSE) is a secondary market. Most importantly, in the secondary market, a broker works on behalf of the investor and any trades on the fluctuating stock prices. Even though the initial cost might not be the same, the broker earns from the commission and investor receives on the amount traded.
When Did the Stock Market Start and Originate?
Of course, you are probably wondering who started the first stock market. The first stock market began somewhere in 1531 in Belgium, but it did not trade in stocks. The early signs of stock trade were seen in 1600. Here, the East India Company released its shares on the Amsterdam Stock Exchange.
When was the Stock Market Created?
The first stock exchange in the U.S. started in Philadelphia as the Philadelphia Stock exchange in 1790. However, the NYSE history began two years later when the New York Stock & Exchange Board came into being. It started with 24 stockbrokers who signed the Buttonwood Agreement on Wall Street in New York City.
What was the World’s First Publicly Traded Company?
The East India Company is the world’s first public limited company that traded in 1600. Even though the trade was not in stocks, traders invested in the ships sailing across the globe. This reduced the risk since multiple East India ships were sailing at the same time across the world. It let the investors invest in many ships, thereby reducing their loss. And it was only in 1602 that the first stock trading by East India Company actually traded on the Amsterdam Stock Exchange.
When Did the Stock Market First Crash?
Even though the stock market trading began around 1800s, it was not regulated. That meant trading happened but without any binding rules and regulations. Because of this, stocks of legal, as well as illegal, companies were bought and often sold.
Over time, such actions resulted in misuse of the trade and closing down of small stores and small companies often overnight. Specifically, a massive loss of such small companies led to the first stock market crash. Accordingly, the market crash led to the banning of share by the government. Though it was only in 1825 that the government agreed to the issuance of shares.
Evolution of the Stock Market
Since it's inception, the stock market has certainly evolved. Not only has technology changed, so have the players involved. We'll evaluate and trace the history of the stock market as well as its evolution.
How Has the Stock Market Changed?
From the early history of stock exchange with unregulated policies, the stock market has grown drastically. These changes have not happened only internally, but externally too. Internally, companies have become more organized to get the benefits of stock trading. In addition, the management has streamlined processes to compete equally in the market. Because the benefits of stock trading are known by small as well as large companies, it makes it a level playing field for all.
Also, another advantage that has benefited over the years is the growth of technology. Computers and easy access to data have resulted in better decision making and improved results. Because, as an investor, you now get to experience high-end granular information for your specific portfolio. For instance, flexibility to research on your own and grow your wealth is another benefit for individual buyers.
In particular, for corporate companies, the dependability on corporate investors has drastically reduced the impact on the company in case of a massive pullout. For example, even as individual investors invest based on sentiment and emotions, professional traders and corporate invest in data-backed decisions often done by a team of professionals.
What is the Impact of the Stock Market on the Global Economy?
The stock market impacts not just the traders, but people indirectly too. This is because stocks affect the commercial setting, building capital and increasing market value of the company. Thus, shares allow individual investors to earn a substantial earning from the stock market even while keeping inflation in check.
In turn, this helps the company increase capital. And due to the increased investment, companies are in a competitive position to provide better products and services. Overall, the resources are also used to the optimum.
Of course, the market value of the company is directly linked to the performance of the company. In other words, better market value results in improved investor perception which leads to a positive outcome. On the other hand, whenever there is a dip in investor interest, it reflects in the judgment of the investor and the stock price.
How has the history of the stock market shaped today’s stock market?
The U.S. has become the biggest equity market thanks to the little impact of the World Wars and growing global companies like General Motors and IBM. As such, their worldwide appeal and service led to massive demand. Additionally, the weak economic environment in Japan around the 1940s and similarly minor economic growth in Germany allowed the U.S. stock market to grow well in comparison. Thus, there was strong economic growth and lesser impact by a weak economic climate.
A comparison of the stock markets in 1900 and 2000 shows US stock markets going strong as compared to other markets. Thus, other markets have struggled to minimize the impact of the global economic environment and internal environment on their stock markets.
Even as the global economic environment changes with time, specific future factors will continue to dominate the scene. While technology will remain at the forefront, what will evolve is the way technology will impact stocks. This is due to the fact that in the last few decades, computers were the new technology. However, in the coming years, the latest buzz in big data and data science will attract new investors. Artificial intelligence and bots are going to be the buzzword shortly as already seen in most sectors.
Prominent People in the History of the Stock Market
The early 1900s saw many people take a chance and actively engage in stock trading. However, by no means were they expert stock traders. Because of a keen eye on the market and confident decision making, these prominent people have been able to build massive wealth with their investments. Some of the renowned names in the stock market history are listed below.
1. Warren Buffett
Even if you have not been a keen stock investor until today, you must have heard about billionaire Warren Buffett. Because of his patient and long-term investments versus going with the market flow, he has reaped million-dollar returns. Due to this, he has created million dollar businesses that have diversified and also contributed to the well-being of the society.
2. Benjamin Graham
Another maverick in the investing industry, Benjamin Graham is known for his modern investing approach. His bets were in companies that were substantially safe and have sufficient cash flows.
3. George Soros
Research-backed stock investment is the hallmark of George Soros. Also, he is known to take risky bets and often borrows to execute his research and gut instinct on a stock. As a result, often this approach has given him profitable returns.
4. Carl Icahn
Carl Icahn plays strategically, often looking at companies with bad management. He gets on board and turns it into a profitable company or sells them for profit. His approach makes investors predict the future of the company, thereby resulting in a jump in the company stock price.
5. John Templeton
One of the early investors in 1939, John Templeton, set high standards when he invested in 100 companies on the verge of bankruptcy. With sound market understanding, he was able to sell 96 shares with profit.
Stock Market Trivia
Next time you're asked about the history of the stock market, you'll be able to recite it perfectly. However, if you're looking for a few fast facts, here is some stock market trivia with which to arm yourself.
- The first stock exchange in the US was the Philadelphia Stock Exchange (founded in 1790) and not the New York Stock Exchange.
- The first million share day – where a million shares were exchanged at NYSE happened on December 15, 1886
- In 2007, the Philadelphia Stock Exchange was purchased by NASDAQ for $652 million.
- Approximately 1 in 12 Americans doesn’t use any financial instruments and banking.
The history of the stock market has evolved and will continue to with new technology. This will surely extend to its impact on people and economies.
We hope you enjoyed reading the history of the stock market. Therefore, as a new investor or an amateur, these insights can give you a glimpse as to why stock markets have been difficult to crack. But with a little help, you can build your wealth and establish a name in the stock market.
Do you have any questions on the history of the stock market? Share it with us in the comments!