A stock is a legal symbol of ownership in a business. When you buy stock, you are buying part-ownership of that business. In other words, you become a shareholder. A business will typically spread ownership to hundreds or even thousands of shareholders worldwide. Shares are sold when the company wishes to obtain cash. In a small business, it could be said that the owner has 100% of all shares. However, when a business grows beyond a certain size, it may require capital for expansion, and selling shares is the easiest way to obtain capital.
Most stockholders do not have much say in running the business because their ownership proportion is negligible. To make a difference, you must own lots of shares or work with several smaller shareholders. Nowadays, buying stock has become more of an investment rather than trying to run the business. You buy stock and wait for the company to grow, and this will appreciate the stock value, and you make money by selling it. Or you could make do with the percentage of profits the company gives you based on your shares or dividends.
The stock exchange is the place where people trade stocks. The three important share markets in the United States are the New York Stock Exchange (NYSE), the American Stock Exchange (AMEX), and Nasdaq. Stocks are bought and sold through stockbrokers or Direct Investment and Dividend Reinvestment Plans (DRPs). The plans allow you to purchase the stock directly from the company instead of on the open market.
Wall Street is a famous and important place for the American stock market. The street is named after the high fence built by the Dutch settlers in New York during the 17th century. Though the fence lasted till 1685, the street next to it was permanently named Wall Street. The history of the American stock exchange begins in Philadelphia. The first stock exchange was built here in 1770, the Philadelphia Stock Exchange (PHLX). The first New York stock exchange was opened two years later, though it was less successful. In 1817, New York stock exchange representatives traveled to Philadelphia to understand why it was more active. The international exchange started earlier, and it with the United States history can be found HERE.
This created a more disciplined and formal New York Stock and Exchange Board. Another important point in this history is the crash of 1929, which triggered the Great Depression. Since then, there have been numerous bull and bear markets, several crashes and recoveries, and an appreciation in the value the markets create.
If you would like to learn more about stocks or investing in general, don’t hesitate to get in touch with me if you are in or near the Metro-Nashville area. For those outside Tennessee or who prefer someone closer to them, seek out a fee-only fiduciary Registered Financial Consultant (RFC) near you.
