If someone asked you about the market, your answer would vary depending on the context. It could be the supermarket, the farmer’s market, the public market (like Milwaukee’s and Seattle’s), the flower market or the stock market. Or it could be industry specific like the housing market, the financial market and not excluding the underground market. Some markets are simple to explain while others are not as straightforward.
The Early Market
The late 1400’s – Antwerp (modern-day Belgium) was the center of international trade. Merchants bought goods at a certain price anticipating those prices would rise that would net them a profit, not unlike the public, farmer’s and even supermarket of today.
In the 1600’s – The first modern stock trading originated in Amsterdam. For many years, the only company trading was the Dutch East India Company until the Amsterdam Stock Exchange was founded in 1668.
Late 1700’s – A small group of merchants made the Buttonwood Tree Agreement meeting daily to buy and sell stocks and bonds.
In 1817, the Buttonwood traders observed and visited the Philadelphia Merchants Exchange to mimic their exchange model, creating the New York Stock and Exchange Board (NYSE).
The Bond Market
Is a debt market, fixed-income market, or credit market. It is the collective name given to all trades and issues of debt securities. Bonds are a form of credit where the bond issuer must repay the bond owner’s principal plus additional interest.
The Bond Market and Debt Securities: An Overview
The Stock Market
The stock market is made up of investors buying, selling, and trading shares of public companies’ stock, reflecting these firms’ collective value and performance.
Bonds represent debt financing while stock are equity financing.
In 1971 trading began on the National Association of Securities Dealers Automated Quotations, otherwise known as the NASDAQ.
History of the Stock Market: How the NYSE Started | SoFi
What Is the Stock Market and How Does it Work?
Stock Market Indexes
The Dow Jones Industrial Average and the S&P 500 Index are two of the stock market’s most known benchmarks that try to capture the performance of the entire stock market and even the economy as a whole.
Charles Dow and Edward Jones founded the DJIA in 1896. The Dow is a price-weighted average meaning stocks with higher price-per-share levels influence the index more than those with lower prices. The Dow is made up of 30 large, U.S.-based stocks.
The S&P 500 index was created in 1923 by Henry Barnum Poor’s company, Poor’s Publishing. It began by tracking 90 stocks in 1926. Standard & Poor’s was founded in 1941, when the company merged with Standard Statistics.
The Market Crash
The Dutch tulip bulb market was one of the most famous market bubbles (1636 – 1637) and crashes of all time. Also known as ‘Tulip Mania,’ when speculation drove the value of tulip bulbs to extremes. The rarest tulip bulbs traded for as much as six times the average person’s annual salary at the market’s peak.
The Real Story Behind the 17th‑Century ‘Tulip Mania’ Financial Crash | HISTORY
Other notable crashes we are familiar with:
1929: The U.S. stock market crashes after the decade-long “Roaring 20s,” when speculators made leveraged bets on the stock market inflating prices. The Great Crash occurred on only a few days in October – Black Thursday (24th) and Black Tuesday (29th). The ensuing Great Depression lasted more than a decade with the stock market not fully recovered until November 1954.
2008: The stock market crashes after the boom and bust of the housing market, along with the proliferation of mortgage-backed securities in the financial sector. The Great Recession lasted 18 months from December 2007 to June 2009.
2020: The COVID-19 pandemic reaches the U.S. in early 2020, and the stock markets see a large decline from February 20th, 2020 ending on April 7th, 2020, less than 2 months.
The Modern Market
Mutual Funds are an investment vehicle that pools money from multiple investors to purchase a diversified portfolio of stocks, bonds, or other securities in accordance with the fund’s strategy. What are Mutual Funds and How to Invest in Them
Exchange-Traded Funds are an investment fund that holds multiple underlying assets and can be bought and sold on an exchange, much like an individual stock. ETFs can be structured to track anything from the price of a commodity to a large and diverse collection of stocks. Exchange-Traded Fund (ETF): How to Invest and What It Is
Indexed Funds are mutual or exchange-traded funds (ETFs) designed to track a specific market index. Index funds provide investors with an easy and cost-effective way of diversifying and mitigating risk associated with individual stock investments.
John Bogle introduced the Vanguard 500 Index Fund as the inaugural retail index fund back in 1971. His goal was to offer low-cost investments that allowed investors to achieve market returns without incurring high costs from active fund management. These passively managed investment options have become an integral component of many investors’ portfolios over time. Index Fund: Definition, History, How it Works, and Types
Just as I did with cash, I created a reference for each type of financial security vehicle to understand what they are, how they work and how they differ. And I’m sharing it here.