A Brief History of Investing

There was a guy on radio this week talking about the financial literacy gap of Malaysians. While I agree with him that children should be educated on the subject, I think that adults can learn financial stuff too to make up for the missing classes in school last time, so here’s a brief history of investing:

lorry

There once was a guy by the name of Chris C who have an idea. He wanted to find a shorter route to transport his spice from Malacca to Madrid. But money was concentrated in the hands of a few rich and powerful persons. And so Christopher Columbus went to the Queen of Spain and asked for money to find a route thru the Atlantic Ocean. The expedition was risky, although they did not find Malacca, they did find America and the Kingdom of Spain grew rich and powerful.

group.jpg

Another country without a King asked themselves, “How can we too grow rich? There is no single person here who can fund an entire expedition!” After thinking about it, someone came up with the bright idea,”How about we bring all our monies together? We can share the costs, the risks and the rewards as well.” And so the Dutch founded the Dutch East Indies Company. Stocks were issued and the costs, risks and rewards were shared according to the amount contributed.

startup

The Dutch grew rich and when the British saw what the Dutch had done, also launched their own startup, the British East India Company. However, as the years passed, some owners of the company wanted to cash out some of the gains already made, perhaps to buy a new castle or retire. Thus the London Stock exchange was born so that stock may be traded without the company stopping operations.

wall street

Some British businessman then moved to America, brought the idea over, and did the same kind of trading in some back road called “Wall Street”. As the years passed, Wall street grew more and more efficient. Where the daily prices used to have a high markup for the stockist to hold the stocks, current system connect buyer directly to seller. Where stocks must be traded manually and hence in large quantities, current system can do small lots and is automated. Investing thus have arrived for the masses.

mutual fund.jpg

But wait, there’s more. Technology did not stop there. A group of smart people asked, “how can we take advantage of these small lots? Why not we bring all monies together from a very large group of people, buy stocks across a very large group of companies?” Thus Unit Trusts was born, so that for an amount of money affordable by the common person, he can own a small % of many different companies and across the whole world!

Democratized-Business-1

Today investing is cheaper, faster, safer and more diversified. I can’t emphasize enough how this is an important development for everyone. Investing used to be risky and only for the rich, but now everyone can invest!

So before everyone go off, those interested in more advance ideas can read more about diversification here:
https://www.franklintempleton.ca/en-ca/public/commentary/why-diversify
http://www.investopedia.com/articles/02/111502.asp
https://www.fidelity.com/learning-center/investment-products/mutual-funds/why-diversify
https://blog.wealthfront.com/diversify-concentrated-portfolio/

diversify.jpg

diversificatio.jpg

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s