If You Made Money in the Stock Market, Blame It on the Puritans

What is a stock?

The term "stock" usually abbreviates "common stock," which represents the total of a company's assets and liabilities in the form of "shares." There is also such a thing as "preferred stock," but this does not trade on the open market like common shares.

1 share of a company thus represents ownership of the company in tiny slices. Imagine you could break up a company (and all its holdings) into fractions. Each fraction you might call one "share" of a given company. Then you can sell such shares individually, or together in "lots" on the open market.

The shares you buy or sell are then given a special number on the back of a certificate, held at the place (exchange, with a copy sent to the brokerage) where you bought them. Your broker buys them either from the exchange or from a recognized middle man company that act as clearinghouses for the exchanges. This stock certificate bears a "CUSIP" number, and it certifies that you own the shares of stock bought in such and such a purchase on this or that day.

What sets the price of a stock?

Supply and demand pressures, known as the "bid" and "ask" prices (where the bid price represents what the buyer wishes to pay, and the "ask" portrays what the current owner wants for his stock) display electronically on a trading window. These set the price. The window looks like a flashy spread sheet, with data changing moment my moment to keep pace with the trading activity -- the intersection of these (the bid and ask) produces (triggers) a transaction between two orders placed by this method.

If you set a limit order -- an order set in advance which indicates you only wish to buy (or sell) at a specified price -- you could be out playing golf when the order fills. If the stock for which you submit the order never reaches the price you set, you lose and gain nothing -- unless your golf swing improves. Now that would be something.

You can also place "market orders" if you want. These buy "at the market," meaning the best price available as soon as possible. This means -- in computer-ese -- right now. Most market orders fill within 10 seconds. Most of the ones I have seen filled in less than two seconds.

But things did not start off nearly this efficiently. In 1602, shares of common stock began trading on the Amsterdam exchange. This involved very few companies. Later the British employed a few variations on this theme to subsidize (pay for) what later became called the "Industrial Revolution."

By dividing up companies -- or exploration ventures as was common in the 1600's --and selling them in traded parcels (common stock shares), this enabled all sorts of people (who otherwise had not the means to invest in such lofty expenses) to invest in the future of capitalisitic projects they believed likely to succeed. This gave rise to "Joint Stock" companies. The poor (well, poorer) could now become stake holders in many kinds of productive ventures to fulfill what students of the Bible call the "dominion mandate."

The historical trajectory of our current markets then took a route best described as Dutch-British-American. And what do these -- for $400 please, Alex -- nations have in common? They were Calvinistic (Biblicist-filled) nations.

So if you made money recently in the markets, you can blame the Puritans. If you lost money recently, you probably did not diversify your assets sufficiently like a Puritan would have, or else may not have done your research. Puritans do research and are notorious book-aholics.

Don't get me wrong. We can quit any time we want to. We just don't want to. Puritans love books because they became Puritans through books, starting with the Bible. Even during the Renaissance (a Christianized, but not Christian, series of historical trends), Desiderius Erasmus was quoted as having said, "When I get money, I buy books. If I having anything left over, I buy food and clothing." At least his pocketbook was Puritan.

The wikipedia article on the topic says,

"The Dutch 'pioneered short selling, option trading, debt-equity swaps, merchant banking, unit trusts and other speculative instruments, much as we know them' (Murray Sayle, "Japan Goes Dutch", London Review of Books XXIII.7, April 5, 2001)."

These simply name special ways of buying and selling shares or commodities at the market. A commodity names the more common goods one might buy in bulk (for instance, you can buy options or futures for) cocoa, sugar, orange juice, wheat, corn, pigs, cattle, gold, silver, platinum, copper, lumber and the like. These tend to be what you might think of as "natural goods."

You can buy and sell these in lots by way of "contracts," which have expiration dates, so that you must sell them -- if you want to sell them -- by a particular date. If you buy and do not wish to sell -- because you love BACON! -- you can opt to take delivery of all those hogs at a location named in the contract. But most people who buy such contracts have no intention of actually ever seeing the stuff the contract names. They just buy the contract and hold it long enough for the price to go way up and then sell it, to get the profit from the difference between the purchase and sale prices.

This is called "speculating." Historically, speculation drives the markets as the prime mover. People who buy securities (like stock) or commodities to use as insurance against a future unfavorable change in prices are called "Hedgers." Speculators buy to try to obtain profit, and Hedgers buy to obtain price insurance.

For example, suppose company A puts out a catalog, with the clothes they sell and their prices. These have to be good for a certain period of time - say six months. But what if in that time the price of wool shoots up? Now making and selling the clothes they have promised is going to COST them money to sell! so they can buy a contract that guarantees the price of wool to them at a set price, or else purchase a futures contract on that commodity so that they make money on the rising price of wool, and can use the profit to offset their losses on selling it at a lower price to their customers as promised. That's "hedging" against the rise in price of wool (or cotton, whatever).

How many cocoa futures contracts do you think Hershey Chocolate Co. owns? Nestle? Ghirardelli? The biggest hedgers are businesses and nations. With the development of stock markets springing up across the globe (almost every nation has one now), this tends to intertwine the economies of nations isolated from each other a good deal in the past. I believe that churches could -- and should -- learn a good deal about investment opportunities here and abroad (the Christian Church is an international body by nature, and there is no good reason for its economic practices to avoid reflecting this feature of its inherent constitution).

Anything the pagan world did, the Puritans did better. Think "Harvard," "Yale" and "Princeton." These were originally Puritan institutions.

In any case, like the song says, everybody wants to rule the world; and now they can do it in shares. Thanks to the Puritans, you can take over the world one slice at a time. And why not? They did. Happy conquering.

A final note for my Puritan readers: The current price for owning a slice of the biggest online bookstore -- Amazon.com -- is $87.26 per share. You can worry about food and clothes later.
If you want to check it yourself, click here http://finance.yahoo.com/q?s=amzn