The ChoosaBroker Trading Academy
1.2. Financial Markets a Historical Perspective
A brief knowledge of the history of financial markets will provide us with some context for everything that we see around us today. It will also show that people, both individually and as a group, are prone to repeatedly committing the same mistakes. The more things change, the more they stay the same. In this lesson, we will learn about –
Short History of Global Financial Markets
Financial Market Bubbles and Crashes
- Tulip Bubble – Perhaps the first and the most devastating bubble was the “Tulip mania” in the Netherlands in the early 17th century. Newly brought in from Turkey, tulips were a big novelty in the Dutch society of that time. Investor greed drove the price of tulip bulbs to previously unheard of levels, so much so that people began putting up their houses as collateral. But a wave of sales triggered a domino effect, sending prices collapsing.
The Great Depression – In the five years preceding October 1929’s huge Wall Street crash, shares listed on the Dow Jones Industrial Average zoomed 500%, buoyed by unreasonably bullish forecasts about the US economy. Eventually cracks began to appear, hammering the Dow 90% below its 1929 peak, and plunging the country in to the “Great Depression” that lasted for the next 10 years.
History of Financial Market Regulation
Legendary Market Participants
- Charles Dow Charles Dow began his life on a Connecticut farm and never received any formal education in finance. But by the time of his death in 1902, he had founded The Wall Street Journal and gave birth to the famous benchmark index that still bears his name. He was also instrumental in laying the foundation for what came to be known as the “Dow Theory,” the governing postulates upon which modern technical analysis is based.
- Benjamin Graham Benjamin Graham is widely believed to be the “father of value investing.” His second book, “The Intelligent Investor,” is still considered the seminal text on modern financial investing. Graham’s market outlook was based on the principle that any worthwhile investment should be worth substantially more than what investors were currently paying for it. In partnership with Jerome Newman, Graham founded an investment firm in 1926. From that time until the firm was dissolved in 1956, the Graham-Newman Corporation flourished, clocking an average annualized return of 17.00%.
- Warren Buffet With a total net worth of just under $87 billion, Warren Buffett is the world’s third richest man. Since taking charge of Berkshire Hathaway in 1965, Buffet has managed to churn out average annual return of 20.80% for his shareholders, compared to the broad-based S&P 500 Index, which grew at less than half of that – 9.70% per annum. The duration, consistency and magnitude of these returns are unmatched, helping him earn the tag of the “greatest investor of all-time.”