What was the dot.com bubble?

In the world of investing, certain phrases catch on like wild fire. Before you know it, you’re hearing catchphrases on the news, on analyst shows and even on the street from strangers. Maybe no other phrase exemplifies this better than the dot.com bubble. The dot.com bubble was a mini-crash of sorts in the stock market that only affected one segment of stock: the internet company.

The origin of the dot.com bubble can be traced back to 1994. The rise of the Internet from being a Department of Defense secret to a widely used tool in everyday life caused the formation of thousands of new businesses seemingly overnight. Many of these dot.com’s were not run by people who knew that much about business, but the ease of starting their own company over the Internet was so simple, most investors didn’t realize this.

As people poured onto the Internet, excitement grew as to the possibility of reaching such a large number of people so easily and so cheaply. It was, however, the misunderstood nature of the Internet that caused the eventual dot.com crash. Reaching all those people and getting them to buy your product turned out to be a little more difficult than most thought.

Three particular companies that would come to represent the dot.com age were WorldCom, who would end up not surviving the bubble, Netscape, which is still in business today but is considered an also-ran by many, and Yahoo, who isn’t the industry leader it use to be, but is still doing quite well.

The “bubble” referred to in the name comes from investors speculating about a companies future, and as the stock for that company begins to rise, the bubble builds. It’s called a bubble because the speculation and the rise in stock prices isn’t based on any real, ironclad evidence that the company is really worth all the hype.

The Dot.coms began to fail en masse midway through 2000. The Nasdaq market felt the full brunt of these failures since so much of their listed companies were dot.coms. Many companies, such as WorldCom and Pets.com ended up going out of business, costing investors millions. Others, such as Yahoo and Amazon survived, with Amazon being stronger than ever.

It’s unknown if there will be another dot.com bust in the future. With Google having bought YouTube for over a billion dollars, anything is possible. But one hopes that investors will be more careful this time and heed the lessons of dot.com bubble’s past.

What is the Dow?

If you turn on your local financial news, you’re bound to hear the phrase Dow Jones Industrial Average at some point. Most people assume that this just means the stock market, or that it refers to the New York Stock Exchange. But what is the Dow, and what exactly does it measure?

The Dow is a market average. It is used by investors to figure out how certain companies that are being traded are doing. The Dow isn’t the only market average out there, there is the S&P 500 and The Russel 2000, as well.

The Dow takes into account 30 industrial stocks of well-known companies. The 30 companies are likely ones you’ve heard of, like Goodyear, Exxon, IBM or General Motors. The Dow calculates the rises and falls of these 30 stocks and presents a picture of how the overall market and the overall economy are doing. While it may sound complicated, it really isn’t. The Dow is simply a list of 30 companies that have their estimated values averaged together with a particular formula.

The other averages follow essentially the same methods. The S&P 500 uses the values of 500 major companies, while the Russel 2000 keeps up with 2,000 companies that are smaller than the ones used in the S&P and Dow.

The key to following the Dow or any of the other market indexes is to look for trends. Market analysts can decipher problems or benefits in the current economy by looking for particular stocks that go up in certain situation, and particular stocks that go down in others.

The Dow company, now known as Dow Jones & Company was founded in 1882 and they classify themselves as a financial information and publishing firm.

The Dow is responsible for the publication of the Wall Street Journal, maybe the most well known financial publication in the world. The Journal’s first issue was on July 8, 1889. Dow also publishes several other financial publications, as well as Barron’s Magazine.

The Dow also runs several websites dedicated to financial news and information, such as CareerJournal.com and OpinionJournal.com.

The Dow also has a hand in the broadcasting world, where it helps to provide financial content for the CNBC cable network, as well as two finance-oriented radio shows.

The Dow Jones & Company machine is one of the most powerful forces in American investing. Their indices are the industry standard, and the Wall Street Journal has the second highest circulation of any newspaper in North America. The Dow helped to start finance in the US and they look to be a big part of finance in the future.

What is stock?

For those that are new to investing, learning the lingo that is used on Wall Street and in economics classrooms around the globe is essential. When you hear the phrase “stock market” you get a vague picture of a group of men and women running around like crazy people with slips of paper in their hands and yelling out numbers and words that you can’t quite make out. To understand what’s going on, let’s start at the beginning and find out what stock is.

Stock can be described as the wealth (or capital) raised by a company or a corporation from the issuance of shares.

If you own stock in a company, say Microsoft, that would make you a shareholder in Microsoft. If you take all the shares available from Microsoft, or any other company and put them together, that is called Microsoft’s market capitalization. This is figured by multiplying the current price of a stock times the number of shares.

Stock falls into four major categories. There is common stock, preferred stock, duel class stock and treasury stock. Common stock is, just like the name says, the most common kind of stock available. Ownership of common shares usually comes with some voting rights when it comes to decisions made by the corporation. Preferred stock is different from common stock in the sense that they usually get paid more dividends and usually come with extra rights and decision making abilities for the company they are for. Dual Class stock is a combination of the previous two kinds of stock and the rights attached to each share vary. Finally, treasury stock are shares that were once issued to the public, but have since been bought back by the company.

The history of stocks goes back many hundred years to the Dutch East India Company, who began offering shares of their stock as far back as 1602. The East India Company helped to pioneer the idea of joint ownership and helped the economic growth in Europe at that time.

The most popular place to trade stocks in the United States is, of course, the New York Stock Exchange, where millions of shares change hands on a daily basis.

The world of economics and stock trading can be very exciting and very profitable for those that know the ins and outs. Hopefully, this article helped shed some light on what stocks are and how they are used by companies.

What is a commodity?

For someone outside of the Wall Street marketplace, understanding the world of stocks, bonds, P E Ratios and some of the other jargon that’s used every day in the business section of the newspaper can be difficult. One such term that many people may use but not exactly understand is commodity. Most people know that commodities are traded like stocks and that they can be worth a lot of money, but if you ask more specifically, what is a commodity, many people wouldn’t be able to tell you.

So, what exactly is a commodity?

When talking about a commodity, there are a few qualities they usually have. Commodities are manufactured by more than one company and the quality of the commodity is the same from company to company. You wouldn’t be able to tell one companies product from another if you tried.

Sound confusing? It’s not, really. Things like oil, electricity and lumber are considered commodities. A product like, say, clothing wouldn’t be, because people can tell the difference between company A’s clothes and company B’s clothes. If you have a barrel of oil in front of you, it’s pretty much going to be the same as a barrel of oil from another company. The term that’s used in economics to describe this is product differentiation. If you can tell the two products apart, it’s not a commodity.

Historically, commodities are priced based on their “marginal cost,” which means the cost it takes to take the oil from the ground, barrel it and ship it. In today’s market, however, most commodities are priced higher based on things like one companies ability to do the job either faster or slower.

Other products fall into the commodity category like wheat, orange juice and pork bellies (the belly-part of a pig that bacon is made from). More recent commodities include Internet bandwidth and some computer chips.

A famous movie from the early 1980’s Trading Places was about a group of men who tried to make money on the commodities market. While the movie was fictitious, it showed how quickly large amounts of money can be made on the commodities market, and how quickly it can all be lost.

Understanding a little about what goes on on Wall Street can be a fun way to be introduced to the world of economics. While this introduction just skimmed the surface, the next time you hear someone mention commodities, you’ll know exactly what their talking about.

What is a bond?

With the proper savings plan or with a lucky financial windfall, many of us are ready to start investing. However, if you didn’t take any economics classes in high school or in college, you may not be familiar with the basics. Having seen the morning financial news for years, you’re probably familiar with terms like stocks, bonds, commodities and Wall Street, but you might not know exactly what they mean. Let’s take a closer look at exactly what a bond is.

A bond is described as a debt security. Now, don’t let that term confuse you, consider it much like an I.O.U. When you invest in the bond market, what you’re doing is giving your money to something, whether it is a corporation, a government, a federal agency or a municipality that is known as a bond issuer. Now, what do you get in return for this act of faith? You get interest. When you buy the bond, you agree to receive a particular interest rate from whoever you bought it from, and then once the bond “matures,” you get however much you bought the bond for back (usually the face value of the bond.)

The different types of bonds you can choose from are varied. Most people have heard of war bonds that are issued by the country to raise money for war. These were extremely popular during World War II and became a very patriotic thing to do. There are also things like asset and mortgage backed securities bonds, bonds issued by foreign governments and many other kinds.

Now, bonds sound like a pretty good investment, but it doesn’t sound like something that’s going to make you rich overnight. Well, that may be true but that doesn’t mean that bond investing is a bad thing. Think of investing in bonds as good long-term planning. They are perfect for families that need to save for their kids’ college education. If you don’t have kids, don’t worry, bonds are a fantastic way to save for retirement. Bonds are also highly recommended to have as part of your investment portfolio. No matter how much risk you can afford, it’s good to have a rock solid investment, too, so if things don’t’ work out well with your other investments, you have something reliable to fall back on.

Today’s bond market is varied and there are options for everyone, whether you’re just out of college and are looking ahead or if you are a Wall Street high roller and you need an anchor to your portfolio. Investing in bonds can be a fun and educational way to begin investing, and you likely won’t lose your shirt in the process.

What a stock exchange does

The stock market is on the news every day. Even on days when there isn’t trading, like a weekend or a holiday, there are people on TV and in the newspaper that are talking about what they think individual stock are going to do and why you should or shouldn’t invest your money right now. We know that a stock market trades stocks. But why? And what good does it provide to the economy?

The stock market is seen by many to be the engine that drives the economy. Businesses and corporations and even governments use the stock market to create capital or wealth. They create this wealth by offering stock, or shares, which are like little pieces of ownership of the company or corporation, and then they trade them. The value of the stock depends on how well the company is doing. The company sells the stock to investors who buy the stock based on if they think the company is going to be making a lot of money or not. This brings in a huge amount of cash into the corporation. IPO’s or initial price offerings are when a company offers stock to the public for the first time ever. A big corporation can make hundreds of millions of dollars or even billions of dollars during their IPO. If the company continues to do well and make money, the stock price goes up, everyone that has shares makes money and more stock is sold to people who want to own a piece of that company.

The same method works if the company is doing badly. The stock loses value as the company does badly, and people then begin to sell the stock and the value of it goes down.

Every company, even the most successful ones, have their stocks go up and down on a monthly basis based on things like earning reports. There is no 100% safe stock, but there are stock that is referred to as “blue chip” stocks, or ones that are the most reliable.

But it isn’t just stock that is traded on a stock exchange like the NYSE. Bonds, securities and commodities are also traded, creating wealth in many different sectors as well as helping the flow of goods and services over the globe. The role of the NYSE and other stock exchanges around the world cannot be overstated in their importance to the world economy.

Maybe no event in American financial history is better known and more infamous than Black Tuesday, the day the stock market crashed and ushered in a depression that would grip the United States through the first half of the next decade. But what caused such a horrible event and what can be learned from it?

The stock market crash that most people associate with Black Tuesday, was actually a multi-day process. The previous Thursday, the market began its downward slide, with trading setting an all time record with 13 million shares trading hands that day. The Dow had reached an all-time high just a month earlier in September of 1929 with a close of 381.17. A group of bankers met during that Thursday to try to figure out how to stop the slide and they decided to take the same tact that worked to stop the last market panic in 1907. They began to buy massive amounts of blue chip stock to try to reassure investors that the market was holding steady and that they shouldn’t sell everything they had and make matters worse.

The bankers, led by Tom Lamont of Morgan Bank, Chase National Bank’s Albert Wiggin and Charles Mitchell of National City Bank thought that this method had worked, but it only led to a quieter Friday. The downfall would continue early next week.

On Monday, spurred on by negative newspaper accounts of Thursday’s crash, investors sold more and more stock off, sending the Dow into another tailspin. At the end of Monday’s trading, approximately 13 percent of the value of the Dow had been lost. Black Tuesday led to more losses that some believed were spurred on by President Herbert Hoover’s insistence that he would not veto a tariff bill that many on Wall Street thought would hurt the economy.

So, what caused the crash? Most believe an artificial economic bubble is to blame for the crash. The bubble was formed during the 1920’s and the great amount of speculative investing that happened during that time. The downturn in stock prices after the high in September saw a chain of events happen that led to the Great Depression of the 1930’s.

While no one can predict the future, it’s safe to assume that while our current economy is healthy, a possible stock market crash can happen again. But only if we learn from history can we avoid another long-term depression that shakes the American economy down to its very foundation.

The world of stock trading has changed dramatically over the last 20 years. Trades that use to take more than a week to process now take only moments. While once you needed to have a stock broker to make a trade for you, now, from the comfort of your own computer, you can make as many trades as you like, and at a much lower commission than your grandfather would have paid to make the same trade 50 years earlier. The world of online trading can be very tempting to many. Investing is a lot like gambling, with possible huge profits and even bigger losses possible. But how do you know if online investing is for you?

The first question you need to answer is do you have money to burn? Of course, none of us want to toss our money down the drain, but you have to be prepared for the worst. Most online investors are armed with a copy of the New York Times, online subscriptions to several investment websites as well as strong word of mouth from family and friends, but even with all this information, some investments don’t go the way you want them to. Make sure you have room in your budget so that you can afford to lose some and still be secure. Online investing can be addictive, so you should know when to stop.

Be prepared to arm yourself with as much information as possible. While it’s true that even the most informed traders make mistakes, the more you know, the less likely this will happen. This means immersing yourself in reliable, timely and knowledgeable advice. If you’re not willing to take the time to properly educate yourself, you might want to leave investing to your broker.

A good investor has to learn to be patient. While it is tempting to take on the human herding instinct and put your money on the latest trend or the most fashionable stock, those investors that are confident and patient usually come out on top.

If you’re new, stick to blue chip stocks. There is a reason they are called blue chips, they have shown slow and steady growth over long periods of time. There is no such thing as a safe stock, but blue chips are the closest thing you’ll find. A good tip is to always leave a portion of your investments in blue chips, so if the rest of your investments go south, you’ll have something to fall back on.

Online investing can be exciting and fun, but it can also be terrifying for a newbie. Do the research, develop some patience and stick to familiar ground and online investing can be a great way to develop your portfolio without having to bow to mainstream brokers.

The mini-crash of 1997 is remembered better today for what didn’t happen than what did. For the first time in New York Stock Exchange history, trading was halted for the day for the first time ever due to losses in stock prices.

What made this event so controversial is that the “circuit-breaker” system that was used for the first time that day was run on the idea that once the market has lost a certain number of points, trading would be halted. This was seen to be short-sighted since the actual percentage of value lost when trading was halted was relatively minor compared to other market crashes and corrections in the past. The circuit breaker system has since been corrected to only stop once 10 percent, 20 percent and finally 30 percent of the market value has been lost.

As is always the case with trading on the American stock markets, the ripple effect that would turn into a tidal wave started with the Hong Kong market. The Hang Seng Index fell about six percent the night before, but many experts in the US didn’t bear it much mind since the Nikkei average lost only two percent that same day. As markets opened in Europe, they followed suit with their Asian counterparts, with the FTSE losing about 2 percent and the DAX exchange in Frankfurt falling, as well.

As markets opened in the United States, most predicted a bad day, but no one predicted what ended up happening. The NASDAQ, S&P and the Dow Jones all opened lower, and it was pretty much all down hill from there. Just after 2:30 in the afternoon, the Dow had dropped 350 points, causing the first level of the “circuit-breaker” to go off, halting trading. While a 350 point drop is significant, many did not feel a stoppage in trading was warranted at that time, since a drop of that size is relatively small, percentage-wise. Thirty minutes later, trading began again, only to see the 550 point window smashed around 3:30. This second circuit breaker level usually causes a one-hour break in trading, but since there was only 30 or so minutes left, trading for the day was ended.

This correction was seen as a slight bump in what was otherwise a good year for the Dow. The 550 point drop was just over a 7% loss for the day. It turned out to be the 12th biggest percentage loss in a single day in Dow history and third biggest point loss.

When people in the media, or just people in the know, refer to the various stock markets in lower Manhattan in New York City, they usually just refer to Wall Street. The now famous financial district has become synonymous with large amounts of money, power and influence. But how did one street manage to evolve into such an important address?

Ironically, most major investment firms that helped to build Wall Street into the financial force that it is today aren’t even headquartered there anymore. Thanks to technology advancements, these companies are usually headquartered in other parts of Manhattan or in neighbouring New Jersey or Connecticut. One of the most influential companies in Wall Street history, J.P. Morgan moved from the address that they helped make famous in late 2001.

The name Wall Street was actually given to the street since it formed a boundary to the New Amsterdam settlement in the early 1600’s. To help ward off the British, a 12-foot wall was built around the street to keep out invaders in 1653. In 1792, the Buttonwood agreement started the New York Stock Exchange and its headquarters would be on Wall Street.

In 1889, a newspaper that would eventually become the Wall Street Journal began publication. The paper took its name from the fact that a growing financial district was sprouting around the stock exchange and many companies that would go on to be powerful forces in the United States economy were headquartered there.

One of the most well known symbols of Wall Street, the JP Morgan headquarters, was built in 1914. The building still stands today, but is now owned and run by Deutsche Bank.

Wall Street has seen its fair share of history over the years, with the 1920 bombing that killed around 40 people and injured 400 to the great crash of 1929 that saw some people kill themselves. Today, if you check the front façade of the JP Morgan building, you can still see pock marks of the 1920 terrorist attack.

The construction of the World Trade Centers were the only real major architectural change to the financial district in the last half of the 20th century, and their subsequent destruction has left a void in the hearts and minds of many that work and live near there.

The history of Wall Street is a collage of incredible highs and devastating lows. As the center for American and some would say world finance, you can bet that there will be plenty of memories made on the most famous street in the world.