Lecture on the History and Functioning of the Stock Market

The Origin of the Stock Market

• Dutch East India Company (1600s)
  • Employed hundreds of ships for global trade: gold, porcelain, spices, silks
  • High operating costs led to seeking private investment
  • Private citizens invested money in exchange for a share of profits
  • Practice led to the creation of the world’s first stock market
  • Shares were sold in coffee houses and shipping ports

Evolution of the Stock Market

• Modern stock market is more complex
• Companies and investors still use the market to support business ventures
• Entire industries now rely on the stock market (e.g., schools, careers, TV channels)

How Modern Companies Use the Stock Market

• Launching a New Company (e.g., Coffee Company)
  • Advertises to big investors
  • Initial investors sponsor the company’s Initial Public Offering (IPO)
  • IPO launches the company onto the public market
  • Public investors can then buy stocks if they believe in the company’s potential

Investing in Stocks

• Buying stocks makes investors partial owners
• Investment helps company growth
• Success of the company increases stock demand and price
• Increased stock price raises market value and funds new initiatives

Market Dynamics

• Decline in Company Value
  • Investors may sell stocks if they foresee a decline
  • Selling stocks decreases demand and stock price
  • Decline affects company’s market value
  • Potential for big losses unless the company rebounds

Factors Influencing Stock Prices

• Market forces: material prices, production technology, labor costs
• Changes in leadership, bad publicity, new laws and trade policies
• Investors’ personal interests
• Daily market fluctuations influence perceived company success

Psychological Aspects of the Market

• Human confidence can cause economic booms or crises
• Most professionals advocate for long-term investing
• Development of tools to increase investment success

Accessibility of the Stock Market

• Internet allows everyday investors to trade stocks
• Education about the system enables broader participation
• Allows individuals to support businesses and achieve financial goals
• First step to success: getting invested