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Understanding the Stock Market

What is the stock market?

A stock (also known as equity) is a security that represents the ownership of a fraction of a corporation. Companies list shares of their stock on an exchange, and the stock market is where investors can purchase those shares. This allows the company to raise money to grow its business.

The exchange tracks the supply and demand of each listed stock based on how investors are buying and selling. Investors often track the stock market's performance by looking at a broad market index like the S&P 500 or the Dow Jones Industrial Average (DJIA).

How did the stock market begin?

People have been exchanging debt and portions of their business endeavors for years. Belgium operated a stock exchange as far back as 1531 in Antwerp.

The East India Company was an English company formed for the exploitation of trade with East and Southeast Asia and India. England wanted to participate in the East Indian spice trade and received a royal charter by Queen Elizabeth the 1st to do so. A charter is a legal document that formally establishes a corporate entity.

Ship owners traveling to these countries would find investors who would fund their trip in return for a percentage of the proceeds if the voyage was successful. Investors began to receive huge dividends and sell their shares for fortunes.

This got a bit out of hand. Encouraged by the success of these stock trades, people started selling ludicrous investments such as reclaiming the sunshine from vegetables or promising investors shares of an investment so important that they couldn’t be revealed. This is still something that happens today, it’s called a blind pool.

In a blind pool, money is raised from investors and managed by a partner who has “broad discretion” to make investments. A blind pool lacks a stated investment goal for funds that are raised from investors.

Stock Markets in the U.S.

The first stock exchange established in the U.S. was the Philadelphia Stock Exchange in 1790. Today the exchange focuses on equity currency and index options rather than stock trading.

The New York Stock Exchange (NYSE) was formed in 1817 and is still one of the most powerful stock exchanges in the world.

Nasdaq was formed in 1971 and became the NYSE’s biggest competitor. Nasdaq does not inhabit a physical space; it is a network of computers that executes trades electronically.

The stock market is NOT the U.S. economy

Remember! The stock exchange is not an accurate reflection of the U.S. economy.

Big companies (Apple, Amazon, Microsoft, etc.) are able to survive economic downturns that smaller mom and pop businesses are not. The most recent data from the Federal Reserve shows that the wealthiest top 10 percent of American households own about 84 percent of the value of all household stock ownership. The top 1 percent controlled 40 percent of household stock holdings.

Support small businesses and make sure your investments are diversified and ready to accumulate investment returns for many many years! Here's a great resource for finding local Black-owned businesses to support.


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