Stock Market History
The history of stock market trading in the United States can be traced back to over 200 years ago. Historically, the colonial government decided to finance the war by selling bonds, government notes promising to pay out at profit at a later date. Around the same time private banks began to raise money by issuing stocks, or shares of the company to raise their own money. This was a new market, and a new form of investing money, and a great scheme for the rich to get richer. A little further on the history timeline, more specifically in 1792, a meeting of twenty four large merchants resulted into a creation of a market known as the New York Stock Exchange(NYSE). At the meeting, the merchants agreed to meet daily on Wall Street to daily trade stocks and bonds.
Further in history, in the mid-1800s, United States was experiencing rapid growth. Companies needed funds to assist in expansion required to meet the new demand. Companies also realized that investors would be interested in buying stock, partial ownership in the company. History has shown that stocks have facilitated the expansion of the companies and the great potential of the recently founded stock market was becoming increasingly apparent to both the investors and the companies.
By 1900, millions of dollars worth of stocks were traded on the street market. In 1921, after twenty years of street trading, the stock market moved indoors.
History brought us the Industrial Revolution, which also played a role in changing the face of the stock market. New form of investing began to emerge when people started to realize that profits could be made by re-selling the stock to others who saw value in a company. This was the beginning of the secondary market, known also as the speculators market. This market was more volatile than before, because it was now fueled by highly subjective speculation about the company’s future.
This was the pretext for appearance of such stock market giants as NYSE. History books tell us that the reason the NYSE is so highly regarded among stock markets was primarily because they only trade in the very large and well-established companies. It acted as a more stable investment alternative, for people interested in throwing their capital into the stock market arena. The smaller companies making up the stock market formed into what eventually became the American Stock Exchange (AMEX). Contrary to its 80-year old history, today the NYSE, AMEX, NASDAQ and hundreds of other exchange markets make a significant contribution to the national and global economy.
The growth in the number of market participants led the government to decide that more regulation of the stock market was needed to protect those investing in stock. History was made in 1934, when following the Great Crash, Congress passed the Securities and Exchange Act. This act formed the Securities and Exchange Commission (SEC), which, through the rules set out by the act and succeeding amendments, regulates American stock market trading with the help of the exchanges. It also includes overseeing the requirements for a company to issue stock shares to the public and ensures that the company offers relevant information to potential investors. The SEC also oversees the daily actions of market exchanges and how they trade the securities offered.
Although historically, investing in stocks was a “hobby” for the rich, an average person too soon came to realize the value of the investing in stocks vs. traditional assets like land or a house.
The history of stock market trading in the United States can be traced back to over 200 years ago. Historically, the colonial government decided to finance the war by selling bonds, government notes promising to pay out at profit at a later date. Around the same time private banks began to raise money by issuing stocks, or shares of the company to raise their own money. This was a new market, and a new form of investing money, and a great scheme for the rich to get richer. A little further on the history timeline, more specifically in 1792, a meeting of twenty four large merchants resulted into a creation of a market known as the New York Stock Exchange(NYSE). At the meeting, the merchants agreed to meet daily on Wall Street to daily trade stocks and bonds.
Further in history, in the mid-1800s, United States was experiencing rapid growth. Companies needed funds to assist in expansion required to meet the new demand. Companies also realized that investors would be interested in buying stock, partial ownership in the company. History has shown that stocks have facilitated the expansion of the companies and the great potential of the recently founded stock market was becoming increasingly apparent to both the investors and the companies.
By 1900, millions of dollars worth of stocks were traded on the street market. In 1921, after twenty years of street trading, the stock market moved indoors.
History brought us the Industrial Revolution, which also played a role in changing the face of the stock market. New form of investing began to emerge when people started to realize that profits could be made by re-selling the stock to others who saw value in a company. This was the beginning of the secondary market, known also as the speculators market. This market was more volatile than before, because it was now fueled by highly subjective speculation about the company’s future.
This was the pretext for appearance of such stock market giants as NYSE. History books tell us that the reason the NYSE is so highly regarded among stock markets was primarily because they only trade in the very large and well-established companies. It acted as a more stable investment alternative, for people interested in throwing their capital into the stock market arena. The smaller companies making up the stock market formed into what eventually became the American Stock Exchange (AMEX). Contrary to its 80-year old history, today the NYSE, AMEX, NASDAQ and hundreds of other exchange markets make a significant contribution to the national and global economy.
The growth in the number of market participants led the government to decide that more regulation of the stock market was needed to protect those investing in stock. History was made in 1934, when following the Great Crash, Congress passed the Securities and Exchange Act. This act formed the Securities and Exchange Commission (SEC), which, through the rules set out by the act and succeeding amendments, regulates American stock market trading with the help of the exchanges. It also includes overseeing the requirements for a company to issue stock shares to the public and ensures that the company offers relevant information to potential investors. The SEC also oversees the daily actions of market exchanges and how they trade the securities offered.
Although historically, investing in stocks was a “hobby” for the rich, an average person too soon came to realize the value of the investing in stocks vs. traditional assets like land or a house.
What are FIVE strategies or techniques used for buying profitable stocks (“Playing the Market”) ?
1. INVEST [“BUY AND HOLD”]
• Purchase stocks of companies with strong “fundamentals”
• Invest in BLUE CHIPS with a long history of impressive stock performance
• Harvard Business School advises to invest in 5-7 solid companies and not to sell for twenty or more years
• S & P 500 has returned an average return of 10% over the past seventy years
2. BUY STOCK OF COMPANIES YOU KNOW
• Do you see products/services being consumed by friends, family, people of certain companies ? New companies ?
• Stories: Tommy Hilfiger, Starbucks, AOL, Ugg Boots, Cheesecake Factory
3. TECHNICAL ANALYSIS
Use charts, graphs, research, and statistics to judge when a stock will make a move up or down (*see handout)
4. INVEST IN DIVIDEND PAYING STOCKS
Purchase stocks of companies that pay a dividend or profit every three months (ranges 1%-15%)
5. SPECULATE ON COMPANIES
• “Buy & Sell” method of profiting from the stock market
• Searching for higher risk, but more growth potential companies
* What is Day Trading ?
What is a stock?
A stock represent a share in the ownership of a company. If you own a company's stock, then you are a owner, or shareholder, of the company. A stock represents a claim on the company's assets and profits. A stock is also known as equity.
The ownership percent, of a company that you own is calculated by dividing the number of shares a person owns buy the number of shares of stock outstanding.
For example:
1000 shares owned
10,000 shares outstanding
= 10% ownership.
Ownership of stock is represented by a stock certificate. A stock certificate represents your ownership of the company. These days, when you buy stock of a company, you usually do not get the actual stock certificates any more. Instead, your ownership is tracked electronically, making it easier to buy and sell shares.
So, now that you have stock and ownership of a company, what can you do? Not really very much. You will benefit when the price of the stock goes up, or lose if the price goes down. As an part-owner of the company, you are given the right to vote for company's board of directors.
Another way you may benefit is if the company pays dividends. Dividends represent a percent of the company's profit, paid to the shareholders.
Buying stock can be risky, since while the price of the stock may go up, it may also go down. If the company goes bankrupt, then you could potentially lose all the money you invested in the stock. However, that is what investing is all about. Taking risks, in the hope of making money on your investment, with no guarantee that you will make money.
Before investing in stocks, you will need to understand some basic tools. One tool is the stock market table.
The stock market tables give you basic information and price history for stocks. You can use it to see how stocks you own or are interested in owning are performing, how their prices are changing, and how they have performed in the past. Reading a stock market table is simple once you understand how to do it.
THE HARRIS 17
Stock Terms To Know
IPO/ ”Go Public” -A company's first issue of shares to the general public.
Dividend- The portion of the issuer's equity paid directly to shareholders. It is generally paid on common or preferred shares. The issuer or its representative provides the amount, frequency (monthly, quarterly, semi-annually, or annually), payable date, and record date.
Common Stock- Securities that represent part ownership in a company and generally carry voting privileges. Common shareholders may be paid dividends, but only after preferred shareholders are paid. Common shareholders are last in line after creditors, debt holders and preferred shareholders to claim any of a company's assets in the event of liquidation.
Preferred Stock- A class of share capital that entitles the owner to a fixed dividend ahead of the issuer's common shares and to a stated dollar value per share in the event of liquidation. It usually does not have voting rights, unless a stated number of dividends have been omitted.
Capital Gain-Profit or loss resulting from the sale of certain assets classified under the federal income tax legislation as capital assets. This includes stocks and other investments such as investment property.
Bond-Promissory notes issued by a corporation or government to its lenders, usually with a specified amount of interest for a specified length of time.
Bull vs. Bear-A market in which stock prices are rising versus A market in which stock prices are falling.
Volume-The total number of shares traded on one side of the transaction.
PE Ratio-A common stock's last closing market price per share divided by the latest reported 12-month earnings per share. This ratio shows you how many times the actual or anticipated annual earnings a stock is trading at.
Short Selling-The selling of a security that the seller does not own (naked or uncovered short) or has borrowed (covered short). Short selling is a trading strategy. Short sellers assume the risk that they will be able to buy the stock at a lower price, cover the outstanding short, and realize a profit from the difference.
Dow 30 (DJIA)- An average made up of 30 actively traded stocks. The DJIA is calculated by adding the prices of each of the 30 stocks and dividing by a divisor. The DJIA is one of the most widely quoted stock market averages in the media.
S&P 500- is a value-weighted index published since 1957 of the prices of 500 large-cap common stocks actively traded in the United States.
Insider Trading (SEC)- There are two types of insider trading. The first type occurs when insiders trade in the stock of their company. Insiders must report these transactions to the appropriate securities commissions. The other type of insider trading is when anyone trades securities based on material information that is not public knowledge. This type of insider trading is illegal.
Options (“Put” vs. “Call”)- The right, but not the obligation, to buy or sell certain securities at a specified price within a specified time. A put option gives the holder the right to sell the security, and a call option gives the holder the right to buy the security.
Old Economy vs. New Economy- A term describing the old blue chip industries which enjoyed fabulous growth during the early parts of the century. These companies are usually very traditional in their ways of doing business versus the newer high-growth industries or business sectors, such as biotechnology, information technology, and the Internet; also, the effect of these industries on the economy
Blue Chips-Stocks of leading and nationally known companies that offer a record of continuous dividend payments and other strong investment qualities.
Spread (“Bid”/”Ask”) -The difference between the bid and the ask prices of a stock.
Stock Terms To Know
IPO/ ”Go Public” -A company's first issue of shares to the general public.
Dividend- The portion of the issuer's equity paid directly to shareholders. It is generally paid on common or preferred shares. The issuer or its representative provides the amount, frequency (monthly, quarterly, semi-annually, or annually), payable date, and record date.
Common Stock- Securities that represent part ownership in a company and generally carry voting privileges. Common shareholders may be paid dividends, but only after preferred shareholders are paid. Common shareholders are last in line after creditors, debt holders and preferred shareholders to claim any of a company's assets in the event of liquidation.
Preferred Stock- A class of share capital that entitles the owner to a fixed dividend ahead of the issuer's common shares and to a stated dollar value per share in the event of liquidation. It usually does not have voting rights, unless a stated number of dividends have been omitted.
Capital Gain-Profit or loss resulting from the sale of certain assets classified under the federal income tax legislation as capital assets. This includes stocks and other investments such as investment property.
Bond-Promissory notes issued by a corporation or government to its lenders, usually with a specified amount of interest for a specified length of time.
Bull vs. Bear-A market in which stock prices are rising versus A market in which stock prices are falling.
Volume-The total number of shares traded on one side of the transaction.
PE Ratio-A common stock's last closing market price per share divided by the latest reported 12-month earnings per share. This ratio shows you how many times the actual or anticipated annual earnings a stock is trading at.
Short Selling-The selling of a security that the seller does not own (naked or uncovered short) or has borrowed (covered short). Short selling is a trading strategy. Short sellers assume the risk that they will be able to buy the stock at a lower price, cover the outstanding short, and realize a profit from the difference.
Dow 30 (DJIA)- An average made up of 30 actively traded stocks. The DJIA is calculated by adding the prices of each of the 30 stocks and dividing by a divisor. The DJIA is one of the most widely quoted stock market averages in the media.
S&P 500- is a value-weighted index published since 1957 of the prices of 500 large-cap common stocks actively traded in the United States.
Insider Trading (SEC)- There are two types of insider trading. The first type occurs when insiders trade in the stock of their company. Insiders must report these transactions to the appropriate securities commissions. The other type of insider trading is when anyone trades securities based on material information that is not public knowledge. This type of insider trading is illegal.
Options (“Put” vs. “Call”)- The right, but not the obligation, to buy or sell certain securities at a specified price within a specified time. A put option gives the holder the right to sell the security, and a call option gives the holder the right to buy the security.
Old Economy vs. New Economy- A term describing the old blue chip industries which enjoyed fabulous growth during the early parts of the century. These companies are usually very traditional in their ways of doing business versus the newer high-growth industries or business sectors, such as biotechnology, information technology, and the Internet; also, the effect of these industries on the economy
Blue Chips-Stocks of leading and nationally known companies that offer a record of continuous dividend payments and other strong investment qualities.
Spread (“Bid”/”Ask”) -The difference between the bid and the ask prices of a stock.
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