Since it’s the Fourth of July weekend, we assume you’ll be reading this with a Bud heavy in your hand, so let’s talk about America.
What do 17th-century Dutch spice merchants have to do with the 21st century New York Stock Exchange and the dominance of the American economy? A lot, it turns out. Like so much of American history, the story starts with big ships ending up in the wrong spot.
The story starts in 1602 with the Dutch East India Company (“VOC”) where the spice trade was the high risk/high reward investment of the day. If you were a merchant looking to break into the lucrative but dangerous spice trade, you had to buy a ship, crew it, and then send it off to find the goods. Since sailors were still basically navigating by looking at the heavens, this was a fraught exercise. To wit, the VOC recorded 250 ships lost at sea in the 200 or so years it was in business.1
If you were on the hook for the boat and the spices it carried to your investors and it didn’t deliver, you had to eat those costs (the crew was expendable, obvs). To spread out the enormous risk these expeditions carried, merchants began selling “shares” in their company to other investors.
In doing so, the shares in the VOC venture meant that investors could participate in the outcome of the expedition. If it worked, you profited according to your percentage. If it didn’t, you lost, but you lost only what you put in. It allowed investors to gauge their risk tolerance, given the specific expedition.
The risk-diversification approach proved popular and the Amsterdam Stock Exchange was born.
The Paris Bourse followed about 100 years later in 1724, followed by the Philadelphia Stock Exchange in 1790. The New York Stock Exchange (“NYSE”) was created just two years later in 1792.2 Now the largest stock exchange in the world, the NYSE was founded when dudes still dressed like this:
The NYSE’s premium location combined with America’s exploding economy meant that as American companies grew, the NYSE grew alongside it. Add in the invention of the electronic telegraph meant that the NYSE was the preeminent place to trade stocks in America. So, like most things, America didn’t invent it, we just made it ours.
The sophistication of these early exchanges was impressive but rarely meant anything to everyday Americans. Stock exchanges were for rich people to make money and hedge risk. The current buzzword “retail investor” didn’t even exist (a shorthand for middle-class Americans).
This paradigm persisted well into the 1980s. Up to that point, there was no need for someone in the middle class to care about the stock market. A combination of low life expectancy, high-interest rates on savings accounts, and company pensions meant saving for retirement via the stock market was largely unnecessary.
If you did want to play the stock market, you paid this guy $50 per trade:
The paradigm has changed in the last thirty years.
Good news first:
An American born in 1990 has a life expectancy of 75, four years longer than someone born in 1960.3
Technology like Robinhood (and other, superior options) have disintermediated bozo Master of the Universe-types, meaning that investing in the stock market is accessible to everyone and costs nothing.
Now, the bad news:
The percentage of Americans with a pension has fallen from 60% to about 20%.4
And our savings account functionally charges us money (after inflation).
This means investing in the stock market is no longer optional. It is a requirement if you want to retire.
What’s the Upside?
The stock market was invented over 400 years ago but continues to be a driving force in the world's economy. Luckily for everyone reading from America, our stock market remains the gold standard. Since the days of the Dutch East India Company, stock markets have allowed investors to participate in the growth of successful companies (like Amazon, Apple, Google, etc.) so that you make money when the company makes money.
Remember that when you’re crushing your Budweiser American Can that it's a Belgian-owned company, but it still trades on the New York Stock Exchange. U-S-A!
For Your Weekend:
This is where we’ll post a round-up of essays, podcasts, and streaming shows to check out over your weekend. We cast a wide net so you don’t have to.
Read:
The Pied Piper of SPACs by Charles Duhigg (The New Yorker)
Old and busted: IPOs. New hotness? SPACs.
The profile of Chamath Palihapitiya is a subtly hilarious case of when a powerful person’s narrative runs up against legitimate fact-checking. ‘Chamath says x, turns out its y’ punctuates the entire piece. Here’s a taste:
Palihapitiya, who is now reportedly worth multiple billions of dollars thanks to his spacs, bitcoin holdings, and other investments, told me that he has “given a lot of money away,” and is planning future philanthropy “in the half a billion dollars of aggregate commitment.” This may well be true, but the only major donation attributed to him thus far is a twenty-five-million-dollar gift to the University of Waterloo. He declined to name other contributions.
3 Charts for the Month (Weekly Upside)
Hey! That’s us! Give it a read. Send feedback to weeklyupside@gmail.com or leave us a comment.
Listen:
Planet Money: Bobby Bonilla Day (NPR)
Bobby Bonilla’s story is one of the worst deals in baseball history for the Mets. When the Mets agreed to buy Bonilla out in 2000, they asked to defer the $5.9 million he was owed, and Bonilla negotiated that he be paid $1.2 million for 25 years starting in 2011. Why in the world did the Mets agree to such a deal? Bernie Madoff told them they could afford it (cue the ominous music).
The Journal: iPhones, iPads, and iClinics? Apple’s Foray into Healthcare (Wall Street Journal)
Get a glimpse of our possible iFuture… and why that may be harder for all-powerful Apple to pull off.
Apple has been trying for years to reinvent the healthcare system. In 2016, the company started operating its own health clinics for employees as a testing ground. But, WSJ's Rolfe Winkler explains, Apple's had a hard time accomplishing its ambitions.
Watch:
Gordon Ramsay: Uncharted (National Geographic/Disney+)
Looking for a goofy, brainless way to kill 40-minutes at a time? Gordon Ramsay is your guy. Follow the brash celebrity chef as he visits fabulous locations around the world to challenge the local celebrity chef to a cook-off using foraged ingredients. It’s typically over-the-top Ramsay fare that still works. Gotta respect the hustle.
https://www.nationalgeographic.com/history/article/shipwreck-rooswijk-dutch-trading-kent-england-artifacts-spd#:~:text=During%20its%20existence%2C%20the%20Dutch,on%20such%20a%20large%20scale
https://www.valuewalk.com/2019/02/top-10-oldest-stock-exchanges/
https://fred.stlouisfed.org/series/SPDYNLE00INUSA
https://www.epi.org/publication/retirement-in-america/; https://www.marketwatch.com/story/how-retirement-has-changed-in-the-last-30-years-2016-02-16; https://economix.blogs.nytimes.com/2009/09/03/pensions-1980-vs-today/