If you were standing outside a picket fence and looking in, the business world may seem to be a disorderly blur of numbers that doesn’t make sense, larger-than-life personas and a market filled to the brim with big and small players where billions of dollars are exchanged everyday.
But if you were to ever find yourself on the inside of that picket fence, you’ll hear the familiar story of failure and victory, hard-won fortunes that were gained and lost; as well as sudden windfalls that never had any intention of staying. Through the tales of those who have shaped the business world, you’ll meet people who exponentially created wealth and ill-informed (and perhaps unlucky) individuals who lost everything.
The business world is home to corporate scandals spurred by on by greedy charlatans as well as those who piggy back unfairly and unsustainably on the resources of others. But the business world is also a place where dreams come true. A world where the founder of a business can experience a meteoric rise from zero to hero.
The Stock Market
When you walk into a shiny retail store in your city’s prime shopping district, you are seeing but a small glimpse of what really goes on behind-the-scenes before any transaction can occur. The retailer most likely bought their inventory from a wholesaler or local distributor before it was displayed under tasteful (or garish) lighting. It is no different in the world of stock-trading.
It all begins in the primary market where investors buy shares directly from the issuing company. In the secondary market, investors are buying and selling shares from each other. For instance, if you buy shares of your favourite tech darling, you aren’t actually buying them from the tech darling; but from another investor who has decided that he or she doesn’t want that stock anymore.
Investing in the stock market is often perceived as risky, but over time; stocks have performed better than any other type of security. Unlike real estate or other tangible assets, stocks are easy to liquidate and can even provide investors with dividends.
If anything, I’d say that what the stock market unequivocally does is take people on an emotionally tumultuous journey… over and over and over again.
Michele Cagan writes, “The stock market can have nerve-wracking swings (where prices move erratically, like a pinball), exciting run-ups (when prices climb ever higher), and devastating downfalls (where prices plummet). Short-term fluctuations are bound to happen, but sticking with stocks for the long haul is still the surest way to see the best returns.”
If you know how to look and are willing to observe closely, you will see that there is an underlying and recurring pattern in these ups and downs. If you bolt at the wrong time and in the wrong place, you will surely never see the return on your initial investment. If you stay calm and collected, you will notice the impetus that is driving these recurring patterns. Understanding this underlying impetus will bring you one-step closer to building your own personal fortune.
The New York Stock Exchange
The melodic ding-ding-ding of the electrically-operated brass bell recreates and repeats itself each trading day. The sound reverberates and resonates through the voluminous floor. Each of the four trading areas of the New York Stock Exchange (NYSE) has its own bell, operated synchronously from a single control panel that functions as a musical conductor to signal the beginning and the end of the day. The opening bell rings at 9:30 am ET to mark the commencement of the day’s trading session; and once again at 4 pm to commemorate the close.
All the modern traditions that have come down to us through our forebears were once innovations.
The NYSE began in the 1700s when a group of traders met under a buttonwood tree on Wall Street. Like traders of all ages–from Silk Road to Silicon Valley–they came together to buy and sell. They traded in both merchandise such as wheat, tobacco, coffee, spices–as well as securities like stocks and bonds. The 1792 Buttonwood Tree Agreement, one of the most important financial documents in U.S. history, is the founding document of NYSE. While the rules themselves have transformed over time, it is this document that laid down the foundation and the framework for contemporary trading practises.
The triangular upper part of the NYSE building consists of 11 figures. The central figure is Integrity, a classically robed female figure who wears a winged cap and stands on a stepped base. Her arms are stretched outwards with clenched fists. At her feet, two naked children sit on either side. One child reads a book while the other examines a grain hamper.
Figures that represent the works of man are positioned on both sides of Integrity. To her right is the symbol of Mechanical Production–a nude male figure who holds a gear shift with his right hand and a gear with his left hand. Next to him, a male figure symbolising International Trade stands with his right hand resting on a ship’s wheel. Two male figures–Intelligence and Science–recline and kneel as they study patterns that are inherent in the functioning of the universe.
From agriculture to mining, from human knowledge to ethics–the portico of the NYSE represents the gifts of the earth, the work of mankind as well as the knowledge we need to successfully trade with others. At each corner of the pediment is a wave which symbolises the influence of the stock exchange which stretches from sea to sea.
The Oldest Stock Exchange in the World
When you open your kitchen cabinet and gaze at the spices in the little jars that add flavour to your food–what do you see? As a teacher and eternal student of economic history, what I see is a long and tumultuous history of trade that has been condensed into a little convenient bottle for your culinary convenience.
The spice trade, which began in the Middle East, is over 4,000 years old. In its early days, the spice trade was conducted mostly by camel caravans that travelled far and wide over land routes. The Silk Road that connected peoples from different nations was what led to the development of the great civilisations of China, India, Egypt, Persia and Rome.
In its heyday, the spice trade was the world’s biggest industry; around which empires were both established and destroyed. The condensed contents of the spices in the bottles that reside in your kitchen cabinet catapulted forward the exploration and discovery of the ‘new’ continents. It could even be argued that the modern world is built upon the foundation of the spice trade.
After all, prior to the founding of a stock exchange, traders ventured forth seeking to exchange commodities. Economic history is littered with tales of the crises which forced markets to redirect the trajectory it was on; and the story in Amsterdam was no different. In the 17th century, the economy of the Netherlands centred around Dutch sea merchants who resold spices acquired by the Portuguese. After the Spanish Empire gained control over Portugal, they effectively halted the Dutch source of income.
Dutch merchants thus started funding maiden voyages to the East with the intention of discovering trade routes to locations where spices were grown in abundance. These voyages came with enormous risks; and during the first six years of exploration, 1 in 10 ships would be lost at sea; and those that returned lost on average two-thirds of their crew. Despite all that was lost, much was gained. This era of exploration led to the discovery of new trade routes; which in turn formed prosperous trade centres. The merchants that sponsored the voyages of the East came together and formed the Dutch East India Company in 1602.
The Amsterdam Stock Exchange was created with the sole purpose of the funding a venture through the selling of shares in exchange for a share of future profits. This idea took off among the Dutch and the company raised over what would be equivalent to $110 million in modern-day valuation. The AEX thus took its place in history as the world’s first stock market and laid down the foundation of modern capitalism.
And with that, the Dutch East India Company became the world’s first publicly-traded company. After its founding, the States-General of the Netherlands granted it a 21-year monopoly over Dutch operations in Asia. During those two centuries, the VOC sent almost a million people to Asia, more than the rest of Europe combined.
The Stock Market Today
Is the wheel of fortune a friend, a foe or perhaps just a fickle ally? What leads to the meteoric rise of a select few individuals while the rest of the world accepts their status as ‘have-nots’?
If you are still standing outside the picket fence and looking in, the business world may still seem to be a disorderly blur of numbers that don’t make sense, larger-than-life untouchable characters and a market filled to the brim with big and small players where billions of dollars change hands each day. Through the tales of those who have shaped the business world, you’ll meet people who created exponential wealth and ill-informed individuals who lost everything.
I have long held the opinion that money is a neutral force. Our ability to attract it, harness it and perhaps even keep and distribute it, is entirely contingent on our ability to be fruitful and multiply. To handle the ups and downs of the stock market requires a hard-earned sense of maturity that so few possess.
At its core, the stock market is simply a gathering of people from all creeds and cultures who came together with a common purpose to exchange and create value. They brought with them their wares, their gifts and their ideas. The trader is thus ultimately nothing but a conduit for exchange. Following on from that, the stock market itself is nothing but a meeting place to allow for this energetic exchange to take place.
If you’re still standing on the outside of the picket fence looking in, I say join the game. Show up with something, nothing or even a little something. And get ready, for the bell…
Once you hear its call, you will know you have been summoned.
4 thoughts on “The Story of the Stock Market | From Commodities to Securities”
For a small country, Holland has a very dynamic economy.