COLUMN: Stock markets have along — and interesting — history


By the time you read this, we will have celebrated another Fourth of July.

As John Adams saw the holiday “It will be celebrated with pomp and parade, bonfires and illuminations from one end of this continent to another.” Fittingly said for a president who died on the holiday – one of three presidents actually, the other two being Thomas Jefferson on the same day in 1826 and James Monroe in 1831.

Many will remember the famous words Adams uttered on his deathbed, “Thomas Jefferson still lives,” said while unaware that Jefferson had died only a few hours earlier.

Since this day is one of celebrating our country and reflecting on its’ history (both the good and the bad), it seems an opportune time to look at the history of our stock markets.

We all know they exist, what the general purpose of them are, what they do – but do we know how they came into existence?

The first stock markets that resemble what we have now didn’t materialize until the 1500s but there were precursors to that.

In the 1100s, France had a system where individuals managed agricultural debts throughout the country on behalf of banks – effectively trading debts. In the 13th century, the merchants of Venice traded all sorts of things including government securities – yes, spawning the classic Shakespeare play that was written around 1596.

Then, in the 1400-1500s in Belgium, there were stock markets without stocks.

No one was actually trading shares of a company but the markets instead of traded government securities and debts of businesses and individuals.

Yet, these markets were the first of what most closely resembles what we have today.

It wasn’t until the East India Company came to fruition around 1600 that we saw what is regarded as the world’s first publicly traded company, where people actually bought and traded shares of a company.

This was all about the allocation of risk. Setting sail for faraway lands was a dangerous business and many of these ships never made it home. So, forming this limited liability company allowed investors to purchase shares in multiple companies, ie, multiple voyages – and hedge their bets. They still made a profit even if some of the ships on some of their invested companies sank to the bottom of the sea, so long as others made it home.

This type of investment reputedly spurred the saying “waiting for your ship to come in.” The nuggets just keep coming here.

From there, you began to see what we have now. In the early days, trading wasn’t done on a trading floor but instead in coffee shops where stocks were handwritten on sheets of paper and traded amongst investors. Starbucks would be so proud.

The London Stock Exchange was officially formed in 1801 but its’ activities were significantly limited until 1825. It was the formation of the New York Stock Exchange in 1817 that changed the game in America as it traded stocks on one day and quickly became the center of exchange for America, despite Philadelphia being the very first stock exchange in the United States.

The evolution and history go on, giving rise to the NASDAQ, The Dow, the S&P, etc. But now, you can lay your head at night knowing that you filled in a small piece of historical knowledge about the origin of our financial markets. I’m certain it’s been keeping you up at night. Rest easy.

Original content provided by Gregory Mattacola, Esq., CFP, lead adviser at Strategic Financial Services. Content is provided for educational purposes only and should not be used as the basis upon which to make an investment or financial decisions.

Investments involve risk and, unless otherwise stated, performance is not guaranteed. Past performance is not indicative of future performance.

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