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Brief history of the stock market- Part I

Updated: Nov 13, 2020

Info-graphics by Earn Honestly

This article is in two parts, make sure you read it both.

Investment has its roots in ancient Greece where big businessmen used to own ships. They paid ship captains to sail the seas to trace riches and trade them for profits. They end up owning lots of ships but doing that was still risky because every time each ship may not end up with riches and sometimes it becomes hard to cover the loss. Then they offered their profits to those who'll be ready to share the risk of financing the sail and in the end profit also.

In the 1600s, the Dutch East India Company used the same concept but they took the next step by making it a bond like thing. They started to sell their shares of the company and this shareholder can also sell their shares to one another after a rise in its values.

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This rise and fall of share values were used to depend on profit and uncertain rumors. As there was no control over this or no way to predict the fall or rise of value. Also, there was no way to find the exact profit of the company excluding some internal personnel who used to know all whereabouts of the company and shareholders started to doubt the numbers given by the company.

Slowly other companies started to sell their shares to raise the capital to increase their production. But the reputation of stockbroking started to fall in the 1700s in Europe has lots and lots of fake companies used this method to loot the investors. May be there must have been a company which claimed to make a machine that will make gold from potatoes (sarcasm, don't take it seriously!!). To buy the shares of those companies stockbrokers played a major role.

In 1653 when New York was a tiny colonial outpost Wall Street got its name. Pilgrims build the wall to keep out Indians but when the wall was gone path beside it became the heart of New York's commerce and society there was auction block for slaves and was a place for humiliation. In 1789 George Washington became the first president of the US, Wall Street was where merchants gathered under a Buttonwood tree to auction the stocks in banks and mines.

This lasted till 1792 when The Buttonwood Agreement took place on May 17, 1792, was an effort to organize securities trading in New York City that preceded the formation of the New York Stock & Exchange Board now called the New York Stock Exchange.

This agreement was signed by 24 stockbrokers outside of 68 Wall Street. The pact was an effort to avoid government regulations of street auctions and it also blocked newcomers from the business.

Image credit: Google

They did it to make a door to keep these people out so auctioning became less public. Now the public had less information about what was happening in open auction. The only way to buy or sell stock was to hire a broker to do it.

Auctioneers sold stocks and allowed brokers to regulate themselves to prevent fraud and abuse cause these were used to handle with fists and bad words since less reputed stocks were traded on Wall Street.

Then the only reputable stock was stated to be traded and sales were recorded and this created respect about trading. But still, trading was only for two kinds of people outright speculators and people who want to control the company.

In 1789 the first government bonds were traded on Wall Street worth 80 million dollars to pay for the recent war against England.

Do you know how the terms bull & bear find their way to Wall Street? In the old Wild West, a grizzly is chained in the bullfight arena then a bull is charged the bear. Bull could win the contest by thrusting upward its horns and bear could survive by wrestling the bull down breaking its neck. On the Wall Street bulls were the traders who expect to raise the prices and bears were the traders who anticipate the drop in the market.

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