Modern-day stock exchanges arrived in the late 1500s in Belgium, while the New York Stock Exchange was formed in 1817, a few years after the Philadelphia Stock Exchange was formed. This article will explain a brief history of stock markets in the United States and worldwide, and how you can invest in it.
A Brief History of the Stock Market
The history of the stock market can be traced to the late 1100s, when courretiers de change (currency carriers) used to manage the agricultural debts throughout the country on behalf of the then banks. In the years afterwards, the merchants of Venice were credited with trading government-related debt. The modern-day stock exchanges arrived in the late 1500s in Belgium. Most specifically, the first stock market was established in the city of Antwerp, which was the home town of the influential Van de Beurze family. The family was known as the first financial advisors and brokers.
First publicly traded company
The first publicly traded company was the Dutch East India Company, which was the biggest company in the world. The company was involved in all manner of trading such as rice trading, transport, and slave trading. It was the first stock to trade at the Amsterdam Stock Exchange, which is now known as Euronext Amsterdam. In the 19th century, the industry continued to change and in the 1790, the Philadelphia Stock Exchange became the first exchange in the US. In 1949, the exchange merged with the Baltimore Stock Exchange and was later acquired by Nasdaq in 2007. The New York Stock Exchange was formed in 1817, a few years after the Philadelphia Stock Exchange was formed.
How to Invest in the Stock Market
There are more than 4000 companies that are public in the United States. Most of these companies are listed in the New York Stocks Exchange (NYSE) and Nasdaq. There are tens of thousands of companies that are listed in stocks from around the world. These companies become public for a number of reasons. Some of these reasons are:
- To raise capital.By selling part of their stake, the companies are able to raise capital in a cheap way.
- Better credibility and brand strength. Public companies are usually more credible and help to promote the strength of the brand.
- Increase company value. It is always difficult to value a private company. As a result, companies become public to increase the value of their brands.
- For previous investors to exit. For example, before becoming public, companies like Facebook and Twitter had investors. The only way for these investors to realize a profit in the short term was to sell shares in the public market.
What is the Process of Becoming a Public Company?
There are a number of ways in which companies become public. The most common method is through an Initial Public Offer (IPO). To do an IPO, companies work with investment banks like Goldman Sachs and JP Morgan. These banks help to underwrite the IPOs and connect the companies to likely investors. In the beginning of an IPO, a company needs to submit a filing – called S1 – to the SEC. In this filing, the company usually describes its business, its investors, the reasons for going public, the past financial performance, and the risks in the business.
After this, the company’s CEO usually go through what is known as a road show. This is a process in which the management meet and talk to investors about their company and why they need to invest. After this, they price the IPO. In this, the company and the banks decide on the price in which they will price the stock. The price usually goes hand in hand with the number of shares that are being offered. There are three primary things that will affect the pricing of the stock. These are the demand of the stock, the market conditions, and the goal of the company. After this is done, on the IPO day, the company’s investment bank and the exchange work hard to ensure that the stock is listed in the market.
Another way that companies go public is known as direct listing. This is the approach which Spotify and Slack used. In a direct listing, the company did not sell new shares and no bank bought the shares and sold them to the public. Also, there was no lockup period, which means that 90% of all the shares were available to trade in the market. By doing this, the company saved millions of dollars that could have gone to investment banks.
How to Invest in the Stock Market
The process of investing in the stock market is relatively easy. First, you need to come up with a stock market investing strategy. There are a number of strategies that you can use. For example, you can decide to be an investor focusing on the long term or one focusing on the short term. Also, you can be a long/short investor, who invests in companies they believe in and shorts they believe will decline.
After coming up with a strategy, you should do your research on the companies that you want to invest in. In this process, you will look at their revenue and earnings growth, quality of management, and the valuation. After deciding that the stock will go up, you should open an account with one of the many brokers in the market. Some of the biggest brokers you can use are companies like Fidelity, Schwab, etrade, and Robinhood.
Finally, buy the stock and wait for it to go up. You will benefit from the share appreciation that happens and the dividends the company pays to its investors.
What Causes Stocks to Move Up?
There are many reasons why stock prices move up. Some of these reasons are:
- When a company is said to be acquired.
- When a company reports positive earnings numbers.
- When a company receives the backing of an influential investor.
- When the overall economy is doing well.
- When a company initiates or raises its dividends.
- When a company announces a breakthrough technology.
- When a stock has been overly oversold.
- When a company hires an influential CEO.
- When a competitor exits the market.
Final Thoughts on the Stock Market
While many would want to criticize the stock market, the reality is that it has been a force for good. Without it, companies like Microsoft, Boeing, and Facebook would not be what they are today. By understanding how the market has evolved, you will be at a better position to make money and live a successful life as an investor.
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Kasper is our expert for saving, investing and bank accounts. Kasper holds an MSc in Mathematics and worked with Mercedes-Benz and the Dutch tax authorities.