Editor’s note: This article was first published in December 2022. Fact 4 covers 1900–2010, the Somali pirate “stock exchange” and Alakrana ransom in fact 5 date from 2009, and the claim in fact 7 that a stake “today” would be worth more than 40 billion dollars refers to 2022.
Many people think the stock market is something relatively recent, but in fact it has been around for more than 400 years, and in those four centuries the game has stayed exactly the same.
Today we’re going to look at 12 rather curious facts about the stock market. Some of them can serve as a reminder for investors, while others are simply curiosities.
12 curiosities about the stock market
1. The first stock exchange was created in 1602
The idea of a stock market began in the Netherlands in 1602 with the Dutch East India Company (VOC), which issued the first paper shares. Shareholders could buy and sell them, giving rise to the world’s oldest stock exchange: the Amsterdam Stock Exchange, known today as Euronext Amsterdam.
So we could say this was the first listed company in history, although its shareholders had no say at all, because the company was entirely controlled by its directors. It was also the first company to pay dividends to its shareholders, and fairly generous ones at that. During the first half of the 17th century, the company’s dividends averaged no less than 16%. Needless to say, with a dividend yield like that, investing in shares was a really attractive proposition.
2. The first stock market bubble dates back to 1720
Financial bubbles aren’t a recent invention either. Before the dot-com bubble and before the Crash of ’29, there was the South Sea Bubble of 1720. The South Sea Company, based in Britain, had become quite successful during the 1710s. Investors were watching their money multiply with this company, so people didn’t want to miss out on those gains.
In 1719, a share in the company cost 100 pounds sterling. FOMO (fear of missing out) meant that by August 1720, just a year later, the shares were trading above 1,000 pounds each. Faced with such a rise, investors at the time kept buying shares above 1,000 pounds, at which point many of the earlier investors decided to start taking profits, and the bubble burst. By the end of 1720, the company’s shares had fallen back to 100 pounds, leaving a trail of bankruptcies in their wake. A great many British investors lost all their money in this bubble.
And I know what you’re thinking: before the South Sea Bubble there was the tulip bubble. That’s true, tulip mania dates from 1637, but we can’t count it as a stock market bubble because tulips weren’t listed on an exchange. We can, however, point to the tulip bubble as the first speculative bubble in history, when some tulips sold for up to ten times the annual salary of a skilled Dutch worker.
See also: The returns of the greatest investors in history
3. The first book about investing in the stock market
Surprising as it may seem, much of the investment advice given today by the best investors was already set out in a book from 1688: Confusion of Confusions (Confusión de confusiones).
It was written by the Spaniard Joseph de la Vega, a writer and economist who discussed investment and speculation.
The book may be heavy going today, but for a long time it was considered a masterpiece. In it we find advice along the lines of: if you want to get rich, you need money and patience; never listen to stock tips; and if you speculate, you must be prepared to lose money.
You might say that’s pretty obvious advice. But it isn’t so obvious, because more than 300 years later there are people who still haven’t learned something so basic.
4. The most profitable stock market
From 1900 to 2010, the best-performing stock market wasn’t the United States or London. The best performer over those 110 years was Australia, with an annual return of 7.5% after inflation, compared with 6.2% a year for US stocks.
5. In Somalia, pirates are listed on a stock exchange
After the pirates’ success with the ransom paid for the Alakrana (a Spanish tuna boat), they decided to set up a kind of stock exchange where investors can put money into these groups, which operate like maritime companies whose main business is seizing foreign ships.
There are already more than 70 companies you can finance, although they only accept cash. If a ransom is paid after a ship is hijacked, the shareholders receive profits in proportion to their investment. If, on the other hand, the pirates’ boat is sunk by a foreign warship, the investors lose all their money. Unfortunately, many Somali “investors” are making quite a lot of money.
And then they say capitalism isn’t creative.
6. Stock market animals
Wall Street uses the bull and the bear to describe a rising (bullish) or falling (bearish) market or investor. Everything suggests that the bull and bear symbols come from the Spanish gentlemen of California, who used to make bears and bulls fight each other.
The bull charges upwards with its horns, while the bear strikes downwards with its claws. Hence the analogy: when a market pushes strongly upwards (bullish) it does so like a bull, and when it’s under downward pressure (bearish) it behaves like a bear.
But these aren’t the only animal references. There are also wolves, referring to the aggressiveness and lack of ethics and legality of certain individuals. The most famous wolf is Jordan Belfort, nicknamed the Wolf of Wall Street for his market manipulation practices.
See also: Types of financial markets where you can invest your savings
We also have the cat, specifically the dead cat bounce, a term used to describe short-lived rallies within bear markets. If you take the body of a dead cat and throw it against a wall, the cat bounces, but that doesn’t change reality: the cat is dead.
These dead cat bounces often happen because investors who were betting against the market are taking profits. Remember that short selling consists of selling shares in order to buy them back later at a lower price and pocket the difference. In other words, to lock in your profit you have to buy the stock at the low point, and in many cases this means the market isn’t rising because investors are feeling bullish, but because the bears are cashing in their gains.
Then there are the sheep: investors who follow the flock or a shepherd’s instructions. In other words, they invest wherever they see others investing, so investors who behave like sheep following the flock are more likely to buy at the top. If most stock market investors didn’t behave like sheep, the wolves would go hungry.
7. Apple’s third co-founder
As a curiosity, Ronald Wayne was one of the founders of Apple, together with Steve Jobs and Steve Wozniak. He held a 10% stake in the company. In 1976, Ronald decided to sell his 10% for 800 dollars. Today, that 10% stake would be worth more than 40 billion dollars.
And speaking of stock market blunders…
8. A very expensive trading mistake
In 2005, an employee at a Japanese bank wanted to sell 1 share in the company J-Com for 640,000 yen but accidentally put 640,000 shares up for sale at 1 yen each. The mistake caused losses of 27 billion yen (about 225 million dollars).
The Tokyo Stock Exchange suspended trading in the company’s shares to try to limit the financial damage from the error, but to no avail. The confusion it caused led to one of the Tokyo exchange’s worst falls of the year.
The trader’s last words were: “Boss, I guess holidays are out of the question this year, right?”
And speaking of selling shares…
9. The mass sale of Apple shares
In 1997, while Gil Amelio was Apple’s CEO, Apple’s shares plunged to a 12-year low. The slump was caused, in part, by the sale of 1.5 million shares by an anonymous shareholder. It was later confirmed that Steve Jobs himself had made that sale.
Steve Jobs persuaded the board to oust Amelio, and so became Apple’s CEO once again.
10. If you invest in the stock market, you have a 70% chance of making money in any given year
In any given year, the market is more likely to go up than down. Looking at the record for the last 100 years, the Dow Jones rose in 70% of years, while the S&P 500 rose in 77% of the years over the last 40.
That’s why, in theory, a DCA strategy with no adjustments isn’t usually a good idea (“in theory” being the operative words), because as a rule you aren’t averaging down but averaging up. So if you do follow this kind of strategy, the sensible thing is to increase the amount you invest during bear markets. That said, on its own, DCA has shown excellent long-term returns even without any adjustments.
11. The worst month to invest in the stock market
For a long time, October was thought to be the worst month to invest in the stock market. That’s because both the Crash of 1929 and the Crash of 1987 took place in October. But if we look at the statistics, more bear markets have ended in October than started in it, so despite the myth of “cursed October”, it has actually been a good month to start investing.
October does tend to be the most volatile month on the stock market, though. So which is the worst month? Everything suggests that if there is a bad month for the stock market, it’s September. Since 1950, the Dow Jones has fallen by an average of 0.8% in September, and the S&P 500 by 0.5%.
And again, nobody has any idea why this happens. It may be that many investors decide to take their profits after coming back from their August holidays. Or it may be that investors themselves create a self-fulfilling prophecy: if September is a month when the market tends to fall, investors sell to avoid taking the hit, and that causes the fall.
12. A man worked out the secret fuel for the hydrogen bomb just by watching the stock market
Share prices can tell us much more than we think about how people behave, and they can also reveal other kinds of information.
That was the case with economics professor Armen Alchian. In the 1950s, scientists were forbidden from revealing which elements had been used to create the thermonuclear bomb (the hydrogen bomb), but this professor noticed a 460% gain in the shares of Lithium Corp and was quick to connect that rise with the compound being used for the hydrogen bomb. Simply by observing that rise, he worked out that the compound was lithium.
See also: Peter Lynch’s investment principles
Featured image: VOC, Public domain, via Wikimedia Commons.
