STOCK MARKET ANATOMY-2

{2nd POST IN STOCK MARKET SERIES}
HELLO FRIENDS

Thank you for your response on our last post about stock markets
Today we’ll see how it all started ? why?

we are posting a video that will be helpful in understanding the origin of these markets

THE STORY GOES LIKE THIS

In the 1600s, the Dutch, British, and French governments all gave charters {grants} to companies with East India in their names. On the cusp of imperialism’s high point, it seems like everyone had a stake in the profits from the East Indies and Asia except the people living there. These countries used to set up colonies in the east and brought valuable goods with them in ships ,thus making a huge profit on every voyage. Sea voyages that brought back goods from the East were extremely risky – on top of Barbary pirates, there were the more common risks of weather and poor navigation.

In order to lessen the risk of a lost ship ruining their fortunes, ship owners had long been in the practice of seeking investors who would put up money for the voyage – outfitting the ship and crew in return for a percentage of the proceeds if the voyage was successful. It was diversification of risk i.e. instead of one man bearing all the cost of the voyage , many investors used to put money , who would reap profits if the ship returned or bear losses if it doesn’t. These early limited liability companies often lasted for only a single voyage. They were then dissolved, and a new one was created for the next voyage. Investors spread their risk by investing in several different ventures at the same time, thereby playing the odds against all of them ending in disaster.When the East India companies formed, they changed the way business was done. These companies had stocks that would pay dividends on all the proceeds from all the voyages the companies undertook, rather than going voyage by voyage.Basically east india company acted like a link between investors and the main business of getting valuable goods from east. They acted like managers. People gave money to them i.e. investors and they organised voyages to the east for goods and when ships returned or after certain period they gave dividends to the investors. In this way the risk was spread between many voyages rather than relying on one ship .These were the first modern joint stock companies.They are called modern because this is how business is today also. This allowed the companies to demand more for their shares and build larger fleets of ships . The size of the companies, combined with royal charters{grants} forbidding competition, meant huge profits for investors

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