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“Money is a terrible master but an excellent servant.” –P.T. Barnum
“The quickest way to double your money is to fold it in half and put it in your back pocket.” -Will Rogers
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I recently reflected on my investing history and all the changes that have occurred in currency designations and investing over the last 50-plus years.
It’s been a very interesting ride, but money and investing have been around for a long, long time!
We’ll take a walk down memory lane through my investing career, but first I’ll provide some historical perspective by taking a historical look at both money and investing.
Before and throughout recorded history, man has sought ways to store, preserve, create, and transfer wealth.
These methods of wealth preservation and transfer have changed radically over time:
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Money
- Bartering– bartering was the first and easiest method of monetary transfer. Bartering describes a system where goods and services are transferred directly between parties without the use of monetary articles (money). Goods or services are transferred directly from one party to a second party in return for goods or services from the second party (for example, one person raises chickens while a second person is a wheat farmer. The chicken farmer trades fresh eggs to the wheat farmer in return for grain from the wheat farmer. The wheat farmer gets fresh eggs for his family while the chicken farmer gets grain to feed his chickens and wheat for bread.) Bartering slowly evolved over centuries into a type of currency using easily traded items like animal skins, salt, and weapons. These goods became a medium of exchange, even though the value of each of these items could still be negotiated. This system of trading still survives today in some parts of the world.
- Hard assets– the oldest known coins were minted in Henan Province, China in 640 BC. The coins minted were called spade coins because they were minted in the shape of a spade-like farm implement. In 600 BC in Greece, King Alyattes minted the Lydian stater (the coins were made from electrum, a mixture of silver and gold that occurs naturally. Coins were stamped with pictures to designate denominations.)
- Paper currency– In approximately 1260 AD the first paper currency appeared in the Yuan dynasty of China. Even though parts of Europe still used metal coins as their sole form of currency until the 16th century; by 1271 AD the emperor of China was aware of both the Chinese money supply and denominations. Eventually, European banks started using paper currency. These banknotes could be exchanged for their face value in metal (usually gold or silver) at a bank. Most currency at this time was privately issued by banks or private institutions instead of governments.
- Mobile payment– 21st-century electronic technology allows funds to be transferred electronically to pay for goods and services. This same technology can be used to transfer funds to another individual or institution. EFT (electronic funds transfer) technology now facilitates payments, check depositing, and point-of-sale transactions.
- Virtual currency– a new type of currency has been recently created that exists only in electronic form. Digital currencies, which are stored and traded using electronic computer technology and software, are operated by decentralized authorities, not governments.
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Investing
- The concept of investing started many thousands of years ago.
- Investing’s present structure was formulated between the 17th and 18th centuries. This can be attributed to the development of the first public exchanges. The Amsterdam Stock Exchange was established in 1602, and the New York Stock Exchange (NYSE) in 1972.
- The early Industrial Revolutions of the 18th and 19th centuries created fortunes and prosperity that could be invested. Most of the major investment banks were established in the 1800s.
- Investing in the 20th century– most of what we currently consider “investing and portfolio theory” was established in the early 20th century.
- The NYSE– Stock exchanges were actually created by the Phoenician trading network in early recorded history. The New York Stock Exchange (NYSE) traces its origins to the Buttonwood Agreement of 1792. Over the years the NYSE has evolved by modifying and embracing technological advancements to become the largest stock exchange in the world based on market capitalization. The year 1817 saw the formation of the New York Stock and Exchange Board. The NYSE and The Open Board of Stock Brokers merged in 1869 to form the modern NYSE.
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My Investing History
This is not going to be one of those “In my day I walked five miles in the snow to school each day” stories. But, I hope these anecdotes convince all reading how much easier and more efficient today’s technology makes Investing.
Computer technology is vitally important in the collection, and dissemination of information, both general and financial. It’s important to understand that the first commercial computer was not produced until June 14, 1951, the year before I was born.
A large portion of the anecdotal information that I will provide today comes from my personal memory, and may or may not be 100% correct.
I remember that when I first attended college, the main computer at the school occupied the majority of one building, and the building had to be kept at a lower temperature so that the computer would not overheat. All computers were DOS (disk operating system) based at this time, and all computer commands had to be typed and entered into the computer.
Computers played an important role in the 1970s. Computers and computer technology play an even more important part in today’s investing platforms. Computers provide continuous and instantaneous financial information throughout the day.
In the financial world of the 60s and 70s, stock quotes, financial information, and financial articles were available in the Wall Street Journal the morning following the previous day’s close of the stock market (no Internet meant no instantaneous newsfeeds.) Those investors who had inside information, or gained earlier access to the Wall Street Journal were at an obvious advantage in terms of being able to invest based on the most current information (in this case most current information meant information that was at least 12 hours old, and those physically closest to Wall Street were at a huge advantage.)
Having access to the most current financial information was not of the greatest importance to me during the periods of my college and dental school career, as there was no money left over after expenses to divert to investing.
I was married between my sophomore and junior year in dental school. My wife and I saved what little money we could to create a small savings account for emergencies.
It wasn’t until I graduated from dental school in 1978 that I began a more active investment program. Investing strategy in this period consisted of reading the WSJ, financial magazines, or financial articles in local news media. Mutual funds were chosen based on historical returns and information gathered from finance articles.
Modern Portfolio Theory (MPT), the modern basis for portfolio construction) was first recognized in an article, published in 1952. However, Modern Portfolio Theory did not begin to gain traction and wider acceptance, until after the creation of the Internet. The recognized birthday of the Internet is January 1, 1983.
As with most other aspects of modern life, the inception and proliferation of the World Wide Web has fostered a golden age of information availability, innovative ideas, and new technology for investing.
Prior to the Internet, investment and stock purchases (or sales) had to be completed in person, or over the phone with orders made directly through a broker with connections to a commercial brokerage concern tied to the Stock Exchange. There was no feasible or available option for individuals who wanted to make investment purchases, or to individually buy and sell stocks. All transactions went through a broker and both sales and purchases usually included a commission to the broker of between 2% and 3%. Mutual fund purchases or sales could have commissions included of anywhere between 3% and 6%.
According to Investopedia: A “Money Magazine” article from 1992, right as the Internet was just beginning to enter the consumer market, detailed that a full-service broker could charge a 2.5% commission for a stock trade. The example it provided was a $250 commission to trade 100 shares of a stock trading at $100 per share.
Trading itself has benefited from electronic networks that can send trade information through Internet piping. High-Frequency Trading (HFT) is often the subject of much controversy and is accused of contributing to above-average stock market volatility. However, these traders have also been credited with reducing bid-ask spreads, which is simply the difference in cost that exists when buying (the bid price) and selling (the asking price) a security.
These days, the bid-ask spread is down to pennies, but used to be much wider and allowed brokerage firms another opportunity to take money from investor pockets and place it in their own.
Not only has the Internet increased the availability of financial information and services, it has singularly saved hundreds of millions of dollars in transaction fees to investors, both through advisers and do-it-yourself (DIY) investing.
Making a stock or mutual fund purchase today only requires you to access your personal account and hit a few buttons. Most transactions don’t require the direct oversight of a broker and normally don’t generate a transaction fee.
The ability to access the most current and factual information is limited only by the time availability and desire of any individual investor.
This brings this up to the present! But, what happens in the next 10 years?
There is no question that moving forward there will be an increasing need for some type of secure and stable form of digital currency. As digital technology has matured, governments are taking a harder look at the dissociated ownership of digital currencies. It is likely that in the near future, governments will begin to generate a more secure form of government-sponsored digital currency.
In the arena of investing, the most current pressing concern is artificial intelligence (AI). Since artificial intelligence can access and evaluate all information available on the Internet, will AI eventually make investors obsolete? Does the future of investing become concentrated around competing AI investing platforms? Will AI-generated portfolios compete against each other in real-time for market dominance and investor dollars?
We as a people have gone from metal coins to digital currency, and from searching investments in the Wall Street Journal to investing through artificial intelligence technology. I would be lying if I said that I had an adequate answer as to where our future lies. Just looking at the amount and scope of change in Investing in the last forty to fifty years, I can only say that the next 50 years will be incredible and transformational in ways that can’t be currently imagined!
Hopefully, I’m around to see some of these changes that will transform the world in ways we can’t currently comprehend.
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Final Thoughts
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- Money and investing have been around for a long, long time!
- Before and throughout recorded history, man has sought ways to store, preserve, create, and transfer wealth.
- Both Money and Technology have radically changed over time, but at no time has this change been great than the last 50 years.
- There will be new and amazing innovations in both Money and Investing in the near future.
- I really didn’t walk five miles to school in the snow. I’ve only seen snow about a handful of times in my whole life!
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