The stock market then and now

May 31, 2021 | Anderson Patterson

Advances in communications and technology have made the world less than it was 50 years ago. None is more evident than that of the investment sector, where technological advancements have completely changed the investment process.

Around the same time, regulatory reforms in recent decades have shifted the boundaries between banks and brokerage firms. These developments and the growth of globalization after the 1980s have improved the prospects for investors. However, these enhanced rewards were often associated with larger threats. Investment is therefore more difficult today than in previous decades, in particular the 1950s and 1970s.

Understand how the stock market works

The philosophy behind how the stock market works is very simple. A business like an auction house allows buyers and sellers to share and change exchange rates.

The financial market operates through an exchange network – you may have read the Nasdaq or the New York Stock Exchange. Companies list their securities on a market through an initial public offering or the IPO phase. Investors buy these securities, which allows the company to raise capital to expand its operations. Investors will then buy and sell these shares together and observe the supply and demand for each share.

This supply and demand helps decide the price or prices at which market participants – buyers and traders – are willing to buy or sell for any security.

The stock market in the 1950s

The first shareholder and the Great Depression

According to the first census of shareholders in 1952, only 6.5 million US stocks were held by the New York Stock Exchange (NYSE) (about 4.2% of the US population). The stock market crash of 1929 and the Great Depression of the 1930s left a ten-year scar, and the majority of citizens avoided stocks in the 1950s. It was not until 1954, 25 years after the collapse , the Dow Jones Industrial Average (DJIA) broke its 1929 high.

The Glas-Steagall Act of 1933

The investment mechanism often took longer and cost more time in the early 1950s than today. The Glass-Steagall Act of 1933 prohibits commercial banks from operating on Wall Street and separates brokerage firms.

High fixed costs

Fixed costs have become the norm and limited competition has made these costs very high and non-negotiable. Gaps in everyday technology have indicated that the implementation of trading activities took some time between the initial communication between a shareholder and a broker before the note was produced and implemented.

In the 1950s, investment options were still quite modest. The great mutual fund bubble was still a long way off and there was no idea of ​​foreign investment. Active market values ​​were often very difficult to achieve; an investor who wanted an existing stock price limit had little choice but to contact a stock broker.

The growing commercial market

While the relatively new equity investment at the time was expressed in low trade rates, conditions already began to change in the mid-1950s. In 1953, the last year was characterized by steady trade rates of the NYSE less than one million units. In 1954, the NYSE unveiled its monthly investment calendar which allowed investors to spend just under $ 40 per month. This growth predated the monthly investment plans that were subsequently sold by most mutual funds, which contributed to widespread acceptance in the 1970s and 1980s for investing in stocks by the American population.

The stock market in the 1970s

Dow Jones rose 5% in 10 years

The transition in the investment mechanism intensified in the 1970s, even as the US stock market was in the midst of stagflation. The DJIA, which in the early 1970s was just over 800, had only risen to around 839 by the end of the 10-year period, an increase of 5% over that 10-year period.

The rise of mutual funds

However, after the development of Individual Retirement Accounts (IRA) in 1974 under the Employee Retirement Income Security Act (ERISA) and the implementation of the first index fund in 1976, mutual funds became mainstream. In 1974, the duration of trading on the NYSE was increased by 30 minutes to meet expanding demand.

The big shift towards electronic trading

Perhaps the biggest change for investors during this time has been more electronic than traditional securities trading. Inaugurated in 1968 to account for amounts traded, the Central Certificate Service was replaced by the Depository Trust Company in 1973. This means that buyers are now more inclined than actual share certificates to keep their inventory in a single repository. in electronic form.

Merril Lynch listed his actions

Merrill Lynch was the first NYSE participant to list his shares in 1971. In 1975, the Securities and Exchange Commission banned fixed minimum commission prices in a key move, which had always been a mainstay of stocks and US stock exchanges around the world.

20% of the American population participated in the stock market.

These developments, along with the rapid increase in trade and sales due to the increasing use of automation and technology, laid the groundwork for significantly higher trade volumes and the growing popularity of equity investments over the course of years to come. In 1982, the regular NYSE trading amount first crossed $ 100 million. In 1990, the NYSE survey showed that more than 51 million Americans have stocks and more than 20% of the American population.

Stock exchange today

Investing is a much simpler transaction than in previous decades, with buyers being able to trade esoteric stocks with the click of a mouse in distant markets. The range of investment options is now so vast that new investors can be overwhelmed and frustrated. A series of innovations over the past two decades has mainly led to the current investment model due to technical advancements.

The birth of the Internet and computers

First, the proliferation of profitable personal computers and the Internet allows virtually any investor to support day-to-day investments.

Second, the trend of mobile brokers has allowed investors to pay lower transaction fees than full-service brokers. Lower commissions allowed for faster trading, leading people to do day trading as standard work in some cases.

Third, due to the introduction of decimal prices on all inventories in 2001, spending on the expanded supply also declined significantly (another trend that encourages rapid trading).

Finally, ETFs have made it possible for any shareholder to trade stocks, commodities and currencies in national and international markets, as well as facilitate the use by investors of more sophisticated techniques such as short selling. These ETFs make it easier for investors. (Look at short selling and see how to sell short.)

The number of these influences has increased in the new century. On January 4, 2001, the trade value of the NYSE exceeded 2 billion units for the very first time. On February 27, 2007, NYSE volume hit a new high and traded over 4 billion units.

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