3 – M1L2 02 Stock Prices V7

So say, you want a chance to reap the potential financial rewards of investment in stock. Where do you start? Well, usually, you find a brokerage. A brokerage company functions as a middleman connecting buyers and sellers. However, they usually charge fees to complete transactions. It is also sometimes possible to buy stock directly from companies. In this case, you don’t have to use or pay commissions to a broker, but you have less control over the price and timing of your purchase. You can’t buy or sell at a specific market price or at a specific time. Typically, the company buys or sells shares for the plan at set times and at an average market price, but how the shares are purchased depends on the company and the details of the plan. Once you’ve bought some stock, you’ll be very interested in the patterns of changes in its price because in order to make money from your investment, you want to sell it when its price is higher than when you bought it. A great deal of effort has gone into predicting when the price of a stock will go up. In order to follow your stock, you’ll look up its unique symbol or ticker. Alphabets unique symbol is GOOG, Apples ticker is AAPL. This is a price graph of Alphabet stock from 2005 until September 2017. While the graph seems to progress upwards, it isn’t a steady or linear climb. The history of a stock’s price is important and potentially an indicator of how the stock will do in the future. As such, price histories have been studied by investors and traders since stocks were first traded. But when was that? How did all this get started in the first place? Some people trace the history of stock back to the Roman Republic when the state contracted out many of its services to private companies which issued shares to individuals to help with government services. In the early 1600s, the Dutch East India Company became the first company in history to issue bonds and shares of stock to the general public. The company established the Amsterdam Stock Exchange in 1602 as a forum for trade of securities. The Amsterdam Stock Exchange pictured here could be called the first incarnation of a modern stock market. Patterns in market activity have been studied since markets earliest days and some patterns have been observed to repeat. One of the most interesting market phenomena is the market bubble. Bubbles occur when market participants drive stock prices above their value in relation to some system evaluation. There are notable similarities between the tulip bulb bubble which took place for centuries ago and saw the value of a single tulip bulb grow to nearly 10 times the annual wage of a skilled worker and the.com bubble which occurred in the early 2000s. The similarities in the graphs are fascinating and academics from behavioral economists to theoretical mathematicians have devised captivating theories as to why bubbles might happen. One of the earliest works Extraordinary Popular Delusions and the Madness of Crowds was published by Scottish journalists Charles Mackay way back in 1841. If you’re interested in reading more about market bubbles or understanding the forces driving markets which are not explained by standard quantitative models, I’d suggest the work of Robert Shiller and Nassim Taleb.

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