1. Introduction: Understanding the Origin of Stocks
I hope my writing will be very helpful to those who are encountering stocks for the first time.
To understand stocks, it is easiest to start by learning how stocks were created.
2. Historical Background: Birth of Stocks in the Age of Exploration
Stocks originated during the Age of Exploration.
Of course, there were similar forms of stocks before that, but they were mainly used as currency or other types of guarantees.
The true concept of a stock, as we understand it today, essentially began in the Age of Exploration.
3. The Value of Pepper and Early Trade Challenges
Before the Age of Exploration, pepper was extremely expensive.
Everyone knew that bringing pepper from India and selling it would make a huge profit, and everyone wanted to travel to India.
However, the journey was extremely difficult, which forced people to import this expensive pepper through the Ottoman Empire.
4. Private Merchant Ships and the Limitations of Individual Trade
At first, private merchant ships brought pepper back.
Naturally, the merchants made a great amount of money.
However, although the pepper trade route was extremely dangerous, many people could not take advantage of this opportunity because ships were far too expensive.
5. The Birth of Joint Investment: The First Concept of Stocks
As a result, people began to think:
“Instead of doing this individually, why don’t we pool our money together, buy a ship, pay a captain a salary, and have him sail to India and return?”
This is where the concept of stocks was born.
6. Early Stock Agreements and Profit Distribution
People purchased a ship together, hired a captain, and wrote documents outlining how the pepper would be divided when he returned from India.
This is what a stock is.
“We will invest, so pay us the agreed-upon amount of pepper based on our investment.
In return, we will cover the captain’s salary and all expenses required for the voyage.
All you need to do is bring back the pepper.”
7. Growth of Merchant Fleets and the Creation of Trading Companies
In this way, many merchant ships began to appear.
An institution was needed to manage these ships more effectively and to make investing in them easier.
This is how the East India Company and the West India Company were established.
The West India Company mainly traded around the Americas, while the East India Company focused on trade with India.
8. Early Stock Trading: Expectations and Rising Prices
While waiting for the ships they invested in, people began boasting about the shares they owned.
“This ship has been to India five times, and the captain is a veteran.
He will surely bring back a large profit again.”
People wanted to buy shares of that ship.
The price went up.
9. Modern Equivalents of Historical Terms
Merchant ship = Company
Certificate of investment in the ship = Stock
Pepper = Profit (Dividend)
10. Conclusion: Understanding the Basics of Stocks
If you understand this, you already grasp the basics of stocks.