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Home » How Does The Stock Market Work? By Oliver Elfenbaum (Transcript)

How Does The Stock Market Work? By Oliver Elfenbaum (Transcript)

“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.” – Paul Samuelson


In the 1600s, the Dutch East India Company employed hundreds of ships to trade gold, porcelain, spices, and silks around the globe.

But running this massive operation wasn’t cheap. In order to fund their expensive voyages, the company turned to private citizens – individuals who could invest money to support the trip in exchange for a share of the ship’s profits.

This practice allowed the company to afford even grander voyages, increasing profits for both themselves and their savvy investors.

Selling these shares in coffee houses and shipping ports across the continent, the Dutch East India Company unknowingly invented the world’s first stock market.

Since then, companies have been collecting funds from willing investors to support all kinds of businesses. And today, the stock market has schools, careers, and even whole television channels dedicated to understanding it.

But the modern stock market is significantly more complicated than its original incarnation.


Let’s imagine a new coffee company that decides to launch on the market.

First, the company will advertise itself to big investors. If they think the company is a good idea, they get the first crack at investing, and then sponsor the company’s initial public offering, or IPO.

This launches the company onto the official public market, where any company or individual who believes the business could be profitable might buy a stock.

Buying stocks makes those investors partial owners in the business. Their investment helps the company to grow, and as it becomes more successful, more buyers may see potential and start buying stocks.

As demand for those stocks increases, so does their price, increasing the cost for prospective buyers, and raising the value of the company’s stocks people already own.

For the company, this increased interest helps fund new initiatives, and also boosts its overall market value by showing how many people are willing to invest in their idea.

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