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The Stock Market, a market economy providing companies with access to capital and investors a taste of ownership and potential of gains based on the company’s future performance. This fundamental Investment Concept comes with a fine line of risk and return that is based off of the realities of investment performance that can not only affect your money invested, but plays a vital role in your life as a whole.
Understanding the stock market is essential to knowing the ups and downs you can encounter as an investor. The stock exchange has three roles: one, to gather ups the savings of society and distribute them amongst individual savers; second, to appropriately distribute them to companies with the best investment potential; and third, to properly establish a use for savings through assets. The first Stock Exchange was in Belgium back in 1531. Beokers, Traders, and lenders would meet up would deal about business and government. Since there were no exact"stocks" to be traded all exchanges dealt primarily with bonds. A big kick of continuation of the exchange came with the East India Company. A combination of strong imperialist nations who gave authorization to their companies to travel voyages even had individuals to invest in the travel safety over rough seas in order to get a share of profits. Another major player is the London Stock Exchange (LSE) officially formed in 1773, which unfortunately fell due to law restricting exchange.
The first securities exchange or as we know first form of a stick market presented in the United States was the Philadelphia Stock Exchange also known as PHLX. In 1790, their currency options were either a standard or of a Customized.
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... Prices as values are often declining in value. Investors often sell at these times in hopes for buying it for less when values drop even more. And there is a bull market, when prices are rising rapidly. Usually an investor will buy a security or commodity in hopes of reselling it later for a profit.
Certain individuals have stood out as investors and have mastered the stock market and have succeeded in reaping the rewards investing. One of these very well known individuals is Benjamin Graham; an investor, investing mentor, and considered the father of security abyss and value investing. He has written books on his methods and astonishing philosophies. Principle No. 1 states. "always Invest with a Margin of Safety." basically demonstrating when to buy a security at a significant discount to its intrusive value. This would minimize risk and provide high profits.
People watched other people invest their money and gain more profit hence, increasing other’s trust in the stock market. Many people did not have money to pay the total prices of stocks; people bought stocks “on margin”, meaning that the buyer would put down some of his own money, but the rest the buyer would borrow from a broker. Thus, the buyer borrowed about 80-90 percent of the cost of the stock and only 10-20 percent of his money (“The Stock Market Crash of 1929”). This way of investing money was very risky. At times, brokers issued a “margin call.”
January 4th, 1898 was when the stock market was started. Everyone wanted to own part of a business. The way it worked was that the more stock you bought of one company. The more of a owner of that business you were. If that company were to become popular, than the price would go up because more people would want to be apart of owning that business. A bond is a lot different than stocks, Bonds are basically loans. At first the Stock market was conceived as a risky investment, but over time it became stronger and people started to trust it more and more. Pretty soon the New York Stock Exchange was booming with business. When more people started investing the price of stocks started to begin to increase. This occurred first in 1925. For the next year the price of stocks continued to go up and down. Then in 1927 they shot up.
In the years of 18151860, the Market Revolution was underway, as was the Second Great
The Stock Market Crash marked a major turning point in the history of the United States. For decades the U.S. was the world’s leading superpower, but after the crash the country cascaded into the worlds most harsh depression. This crash was caused by a series of problems in the U.S. including, the over production of goods, unequal distribution of wealth and poor regulation of the stock market itself. Many can argue that the crash of 1929, strengthened the nation, allowing for policies such as roosevelt's first new deal, second new deal, the glass steagall banking act, and new regulations in the stock market, and for big business (Blumenthal, Karen). However, what can’t be argued is how the crash sparked a panic as companies, peoples, and the nation sank into the great depression.
The market revolution caused the decline in small-scale production for local use into a rise in large-scale production in manufacturing. The market revolution is the expansion of the marketplace that occurred in early nineteenth century, the construction of new roads and canals that interconnected for the first time. The Erie Canal provided a successful source of transportation, states got involved and spent money into the transportation networks that stimulated economic growth. With the rise of the economic growth there comes problems. Although changes brought by the market revolution helped strengthen the United States economy, there were many effects from the market revolution that caused boom-bust cycles, class division, struggle in upward
The stock market is a centralized area where buyers and sellers comes together to perform stock transaction. When one thinks of the stock market, the first thing comes to mind is Wall Street which is sometimes referred to as the New York Stock Exchange as well as the NYSE.
There are only a handful of stock market exchange sites such as; the American Stock Exchange (AMEX), the New York Stock Exchange (NYSE), and the National Association of Securities Dealers Automated Quotations (NASDAQ). Each site has several similarities as well as differences. An essential difference between the exchange sites is their trading principles. The NYSE was founded in 1792, and has more of an auction market; whereas NASDAQ was founded in 1971, and is more of a dealer market. (Weinburg,
The stock marketplace, targeted at the New York Stock Exchange on Wall Street in New York City, turned into the scene of reckless speculation, wherein all and sundry from millionaire tycoons to cooks and janitors poured their savings into shares. As a end result, the inventory marketplace underwent speedy expansion, achieving its peak in August 1929. By then, manufacturing had already declined and unemployment had risen, leaving stock prices much better than their actual price. Additionally, wages at that point have been low, consumer debt become proliferating, the agricultural
During the 1920s, approximately 20 million Americans took advantage of post-war prosperity by purchasing shares of stock in various securities exchanges. When the stock market crashed in 1929, the fortunes of many investors were lost. In addition, banks lost great sums of money in the Crash because they had invested heavily in the markets. When people feared their banks might not be able to pay back the money that depositors had in their accounts, a “run” on the banking system caused many bank failures. After the crash, public confidence in the market and the economy fell sharply. In response, Congress held hearings to identify the problems and look for solutions; the answer was found in the new SEC. The Commission was established in 1934 to enforce new securities laws that were passed with the Securities Act of 1933 and the Securities Exchange Act of 1934. The two new laws stated that “Companies publicly offering securities must tell the public the truth about their businesses, the securities they are selling and the risks involved in the investing.” Secondly, “People who sell and trade securities must treat investors fairly and honestly, putting investors’ interests first.”2
Financial markets as we know them were arguably started in the 14th century by Venetian merchants tied to the moneylenders - the bankers of their time. They basically bought high-risk, high-interest loans or exchanged them for other loans with other lenders. The first real stock exchange can be linked to Antwerp in 1531 to deal in loans, government, and individual debt. By the 1600’s, all the East India trading companies started to spring up under different countries. Individuals would invest in these voyages, thus creating the first futures markets. It was a risky investment, considering storms, pirates, and the other dangers of a long ocean voyage over relatively unknown seas, but if the ship you invested in came back with full holds then you were pretty much set for life. However, actual exchanges were not established until later. The first was set up in London in 1773, but it was restricted by laws that restricted shares to whom shares could be sold and at what rate they were taxed. Nineteen years later it was followed by the New York Stock Exchange.
Capital markets are markets "where people, companies, and governments with more funds than they need (because they save some of their income) transfer those funds to people, companies, or governments who have a shortage of funds (because they spend more than their income)" (Woepking, ¶3). The two major capital markets are stock and bond markets. Capital markets promote economic efficiency by moving funds from those who do not have an immediate need for it to those who do. Individuals or companies will put money at risk if the return on the intended investment is greater than the return of holding risk-free assets. An example of this would be those that invest in real estate or purchase stocks and bonds. Those that invest want the stock, bond, or real estate to grow in value or appreciate. An example of this concept would be if an individual or company invested an amount saved over the course of a year. While investing may be riskier, these individuals hope that the investment will yield a greater return than leaving the money in a savings account drawing nominal interest. In this example the companies that issue the stocks or bonds have spending needs that exceed their income so the company will finance their spending needs by issuing securities in the capital markets. This is a method of direct finance because the "companies borrowed directly by issuing securities to investors in the capital markets" (Woepking, ¶5).
There is a sense of complexity today that has led many to believe the individual investor has little chance of competing with professional brokers and investment firms. However, Malkiel states this is a major misconception as he explains in his book “A Random Walk Down Wall Street”. What does a random walk mean? The random walk means in terms of the stock market that, “short term changes in stock prices cannot be predicted”. So how does a rational investor determine which stocks to purchase to maximize returns? Chapter 1 begins by defining and determining the difference in investing and speculating. Investing defined by Malkiel is the method of “purchasing assets to gain profit in the form of reasonably predictable income or appreciation over the long term”. Speculating in a sense is predicting, but without sufficient data to support any kind of conclusion. What is investing? Investing in its simplest form is the expectation to receive greater value in the future than you have today by saving income rather than spending. For example a savings account will earn a particular interest rate as will a corporate bond. Investment returns therefore depend on the allocation of funds and future events. Traditionally there have been two approaches used by the investment community to determine asset valuation: “the firm-foundation theory” and the “castle in the air theory”. The firm foundation theory argues that each investment instrument has something called intrinsic value, which can be determined analyzing securities present conditions and future growth. The basis of this theory is to buy securities when they are temporarily undervalued and sell them when they are temporarily overvalued in comparison to there intrinsic value One of the main variables used in this theory is dividend income. A stocks intrinsic value is said to be “equal to the present value of all its future dividends”. This is done using a method called discounting. Another variable to consider is the growth rate of the dividends. The greater the growth rate the more valuable the stock. However it is difficult to determine how long growth rates will last. Other factors are risk and interest rates, which will be discussed later. Warren Buffet, the great investor of our time, used this technique in making his fortune.
Individuals joined together to make profits dating back to the 16th and 17th century, by funding explorers to the new world looking for wealth, riches, and fortunes. These early joint ventures had no formal agreements or laws governing their transactions. A simple hand shake and verbal agreement was sufficient. The early laws of incorporation came in to being in the late 19th century, but there was not corporate governance. During the Roaring ‘20’s the United States experienced great economic growth with the average American investing in the Stock Exchange. The failure of the Stock Exchange and the Great Depression called attention to how companies were governed, but there still was a lack of a presence of corporate governance.
The stock market is an essential part of a free-market economy, such as America’s. This is because it provides companies the capital they need in exchange for giving away small parts of ownership in their company to investors. The stock market works by letting different companies sell stocks to gain capital, meaning they sell shares of their company through an exchange system in order to make more money. Stocks represent a small amount of ownership in a company. The more stocks a person owns, the more ownership they have of that company. Stocks also represent shares in a company, which are equal parts in which the company’s capital is divided, entitling a shareholder to a portion of the company’s profits. Lastly, all of the buying and selling of stocks happens at an exchange. An exchange is a system or market in which stocks can be bought and sold within or between countries. All of these aspects together create the stock market.
In the modern world, financial markets play a significant role, with huge volumes of everyday dealings. They form part of contemporary economic lifestyle and determine the level of success of many people. Humans have always been uncertain of what the future holds and thus, tried to forecast it. The forecast of course cannot omit the likelihood of “easy money” by forecasting the prices of equity markets in the future.