Nearly everything you eat, wear, read, listen to, ride in, lie on, or gargle with is made by one. Perfume to penknives, hot tubs to hot dogs, nuts to nail polish are made by businesses that you can own. Your toast may pop out of a toaster from Toastmaster, which has been in business since the s and is still going strong. The coffeepot, microwave, stove, and refrigerator are made by public companies, and the larger supermarkets where you or your parents buy the food are public as well.
Maybe you ride to school in a bus built by General Motors out of steel from Bethlehem Steel, with the windshield glass coming from PPG Industries, the tires from Goodyear, and the wheels made by Superior Industries from aluminum that Superior gets from Alcoa. The gas for the bus comes from Exxon, Texaco, or one of the many public oil companies. The bus is insured by Aetna. The bus itself may be owned by Laidlaw, a company that runs the bus system in many school districts.
In , another public company, Viacom, swallowed Paramount in a takeover. Takeovers happen all the time in business. You can buy stock in any or all of these companies, as well as in the supporting cast of suppliers of cables and switches, companies that make and launch telecommunications satellites, and companies that manufacture the phones themselves. Your TV set is made by a public company, most likely Japanese.
You can invest in Jeopardy, Wheel of Fortune, and Oprah by buying shares in King World, a public company that syndicates those three shows, among others.
Most of the products advertised on TV are made by public companies. Many of these ads are written and produced by public ad agencies such as the Interpublic Group.
As already mentioned, the Mars company, which makes Mars bars, Milky Way, and Snickers, is private; so is Levi Strauss, the blue jeans manufacturer. In almost every chain of stores or fast-food outlets you can think of, every major manufacturer, every company with a brand-name product, you can be an owner. From sea to shining sea, over 50 million men, women, and children have become part owners in thirteen thousand different public companies.
Being a shareholder is the greatest method ever invented to allow masses of people to participate in the growth and prosperity of a country. When a company sells shares, it uses the money to open new stores, or build new factories, or upgrade its merchandise, so it can sell more products to more customers and increase its profits. And as the company gets bigger and more prosperous, its shares become more valuable, so the investors are rewarded for putting their money to such good use. Meanwhile, a company that prospers can afford to give pay raises to its workers and move them up the line to bigger and more important jobs.
It will also pay more taxes on its increased profits, so the government will have more money to spend on schools, roads, and other projects that benefit society. This whole beneficial chain of events begins when people like you invest in a company. Investors are the first link in the capitalist chain. Over thousands of years, the average person lived out his or her life without buying a single item.
People worked as serfs, slaves, or servants, for masters who owned the land and everything on it. In return, the workers were given free room in a hut and a tiny plot of ground where they could grow their own vegetables. Nobody complained about working for zero pay, because there was no place to spend it. Once in a while, a pack of traveling salesmen would come through town and set up a market, but a market was an isolated event. The kings, queens, princes, princesses, dukes, earls, and so forth, who owned all the property— buildings, furniture, animals, ox carts, everything from gold jewelry to pots and pans—kept it in the family.
The only ways to acquire real estate were to inherit it or to take it by force. In many parts of the world, since the earliest days of Judaism and continuing with Christianity, business for profit was an X-rated activity, and lending money and charging interest could get you kicked out of the church or the synagogue and guarantee you an eternal spot in hell.
Bankers had an unsavory reputation, and people had to sneak around and visit them on the sly. By the late s, the world had opened up for business with brisk trade between nations, and markets were cropping up everywhere. Enough money was in circulation and enough people could buy things that merchants were making a nice living.
This new merchant class of shopkeepers, peddlers, shippers, and traders was becoming richer and more powerful than princes and dukes with all their real estate and their armies.
Bankers came out of the closet, to make loans. Backyard inventors, dreamers and schemers, banks, money, and investors also deserve a place on this list. In the opening chapter of our story as a nation, we read about native Indians, French trappers, Spanish conquistadores, sailors who sailed in the wrong direction, soldiers of fortune, explorers in coonskin caps, and Pilgrims at the first Thanksgiving dinner.
But behind the scenes, somebody had to pay the bills for the ships, the food, and all the expenses for these adventures. Most of this money came out of the pockets of English, Dutch, and French investors. Without them, the colonies never would have gotten colonized. You had to have permission from a king or a queen. In those days, the kings and queens ran the whole show. Religious groups such as the Quakers in Pennsylvania got charters.
And once you had the royal permit to settle the land and start a colony, then you had to look for the financing. Crowds of eager investors gathered there, trying to get the attention of a stockbroker, and when their pushing and shoving got out of hand, police were called in to restore the peace. The Dutch spent millions of guilders their version of the dollar for the privilege of owning shares in United Dutch East India, which today, with so many companies known by their abbreviations, might well be called UDEI.
In any event, the Dutch company took these millions of guilders raised in the stock sale and used the money to outfit a few ships. These ships were sent off to India and points east to bring back the latest Far Eastern merchandise, which was the rage in Europe at the time. In the case of United Dutch East India, the optimists turned out to be right, because the stock price doubled in the first years of trading, and the shareholders got a regular bonus, known as the dividend.
The company managed to stay in business for two centuries, until it ran out of steam and was dissolved in Have you ever wondered who paid for this wild goose chase? So when Peter Minuit made the most famous real estate deal in history, buying Manhattan for a small pile of trinkets worth sixty guilders twenty-four dollars in our money , he was acting on behalf of the Dutch West India shareholders. Seeing how the Dutch financed their New World adventures, the English followed their example.
That company footed the bill for the first expedition to Jamestown, where Pocahontas saved Captain John Smith from having his head bashed in by her angry relatives. They were hired to clear the land, plant the crops, and build the houses, but all the property, the improvements, and the businesses belonged to the shareholders back in London.
If Jamestown made a profit, the actual residents would never see a penny of it. After seven years of nasty disputes and complaints from the settlers at Jamestown, the rules were changed so they could own their own private property.
It turned out not to matter at the time, because the original colony went bankrupt. The exclusive right to do business along the rest of the coastline from Maryland into Maine was awarded to yet another English company: the Virginia Company of Plymouth. The way the map was drawn in those days, most of New England was part of northern Virginia. When the Pilgrims landed at Plymouth Rock and stumbled onto shore, they were trespassing on property belonging to the Plymouth Company.
Every schoolchild learns how the Pilgrims risked their lives to find religious freedom, how they crossed the cruel ocean in a tiny ship, the Mayflower, how they suffered through cold New England winters, how they made friends with the Indians and got their squash and pumpkin recipes, but nothing about the remarkable story of how they got their money. The Pilgrims had left England and taken up residence in the Netherlands, where the first stock market got its start—not that the Pilgrims cared about stocks.
After several years in the Netherlands, the Pilgrims got fed up and decided to move. They had three possible destinations in mind: the Orinoco River in South America; a section of New York controlled by the Dutch; or a parcel of land offered them by the Virginia Company of London.
The one thing holding them back was a lack of cash. They needed supplies and a ship, and could afford neither. This is when Thomas Weston entered the picture. Weston was a wealthy London hardware dealer, or ironmonger, as they were called in those days.
He had access to property in New England and he had access to plenty of cash, and he and his pals thought the Pilgrims would make an excellent investment.
In return, the Pilgrims had to agree to work four days a week for seven straight years to make the colony profitable. At the end of seven years, the partnership would dissolve and both sides would split the profits, after which the Pilgrims would be free to go their own way.
The Pilgrims accepted these terms, because they lacked an alternative, and began packing their bags. Then at the last minute, Weston turned the tables on them and changed the contract. Now, instead of having to work four days a week for the good of the business, they were required to work six.
This would give them no free time to plant a home garden, or mend their clothes, or practice their religion, other than on Sundays. After arguing with Weston and getting nowhere, the Pilgrims decided to set sail without a signed agreement and without any travel money, because although Weston had paid for everything so far, he refused to advance them another cent.
The Speedwell leaked, so they were forced to return to port, suspecting all along that the captain and sailors were in cahoots with Weston and had deliberately sprung the leak. Most of them crowded into a second ship that was smaller and slower than the Speedwell—the Mayflower. They were crammed into the Mayflower, on their way to their promised land in Virginia, when they drifted off course and overshot their destination. Realizing their mistake, they tried to turn south, but the rocks and shoals of Cape Cod blocked their passage.
Rather than risk a shipwreck in these unfamiliar, rough waters, they dropped anchor in Provincetown harbor. From there, they moved to Plymouth, where they built their shelters and planted their crops. With Weston having cut off the money flow, the Pilgrims needed a new source of cash. The Pilgrims would get one hundred acres apiece to use as they pleased. Peirce would get one hundred acres per Pilgrim. As much as we like to think of the Pilgrims as focusing only on God, they had the same problems as the rest of us: bills.
Plymouth was losing money and continued to lose money season after season, or as they say on Wall Street, quarter after quarter. This made the investors very upset, as investors always are when they get zero return on their money. Worse than that, they had to send more supplies back to the colony, so the costs were going up. For five years, Pilgrims and investors carried on their money dispute: the Pilgrims complaining about a lack of support and the investors complaining about a lack of profits.
Then in , the partnership was dissolved, with the exasperated investors selling the entire operation to the Pilgrims for the modest sum of eighteen hundred British pounds.
Now comes the most interesting part of the story. Governor William Bradford, the Pilgrim leader at the time, saw right away that the communist arrangement would fail. He realized that without private property, the people would have no incentive to work very hard.
Why should they bother, when all the inhabitants of the colony got the same benefits food, housing, and so forth whether they worked or sat around doing nothing?
A few farsighted residents of the colony petitioned Governor Bradford to set things up so farmers and fishermen were allowed to own their own farms and boats and to make a profit from their efforts. In return, they supported the community by paying a tax on their profits. This free-enterprise system that Bradford put in place was basically the same as the one we have today.
In spite of their hard work, the debt of the colony increased from eighteen hundred pounds to six thousand. More Pilgrims were brought over from Holland to expand the fishing fleet. Their hope was to pay off part of the debt with the profits from fishing, but they never caught enough fish. For ten years, negotiations dragged on between the colony and its lenders, until the dispute was settled once and for all in The Pilgrims helped build the social, political, religious, and economic foundation of modern America, but to the investors, they were nothing but a bust.
Weston, Peirce, and friends were the big losers in this venture, and they were no dummies, either, which goes to show that investing is a tricky business, where the best-laid plans can often go awry. Or maybe they deserved what they got, for being so sneaky and underhanded, and for trying to renege on the original deal.
But there were other opportunities for the European masses to get in on the New World bonanza, and with equally disastrous results. There was the ill-fated Mississippi Company and the South Sea Company, both of which appeared on the scene in the early s, selling shares to tens of thousands of gullible customers in the stock markets of Paris and London. The Mississippi Company was the pet project of a flashy wheeler-dealer named John Law, one of the most interesting characters of his century.
He wangled an introduction to the king, Louis XV, who was underage and left the royal decisions to a regent, the Duke of Orleans. Paper money was a relatively new idea in the world, and the regent was very impressed.
So impressed, in fact, that he gave the immigrant from Scotland complete control over the Royal Bank of France, along with the royal printing press. Almost overnight, he went from being a stranger in the country to being the king of French finance and the wealthiest inhabitant of Paris next to Louis XV himself. With his popularity riding high in the opinion polls, or however they measured it in those days, Law announced his second big project: the Mississippi Company.
Its purpose was to bring back fantastic treasures from the vicinity of the Mississippi River. The Mississippi flowed through Louisiana territory, first visited by French explorers Colbert, Joliet, Marquette and later claimed by the French. The French people back home thought Louisiana was another Mexico, rich in silver and gold deposits just waiting to be carried away. They had to apply to buy shares. And still the buyers kept coming.
In fact, whenever people questioned him or his company, they were shipped out of town, to distant prisons. Frantic investors pay ridiculous prices in order to get in on a spurious opportunity, and sooner or later, the prices come crashing down.
They lost their life savings, the French economy collapsed, and the banking system collapsed along with it. As quickly as Law had become a French hero, he became a French goat. The organizers copied all their moves from Law. In , the South Sea Company announced a new plan to lend the British government enough money to wipe out its entire national debt, military and otherwise, if the government would agree to pay 5 percent interest on the loan.
At the same time, the company began to sell more shares of its stock. Half of London headed for Exchange Alley, the hometown stock market, in their horse- drawn carriages, determined to buy shares. This caused a nasty carriage jam, and the streets were blocked for weeks. There was so much demand for these South Sea shares that the price tripled overnight, before the British Parliament had approved the debt deal.
A British statesman even issued a warning: People should keep their money in their pockets. But during bubbles such as this one, nobody listens to a lone voice of reason. When the word got out that the organizers of the South Sea Company had gotten very rich by selling shares, other companies were quickly created by people who also wanted to get rich. There was a company for every wild scheme you could think of: a perpetual motion machine, salt farms in the Holy Land, importing walnut trees from Virginia, drying malt in hot air, making lumber from sawdust, inventing a new kind of soap.
One company refused to tell investors what it planned to do with their money. When the bubble finally burst, the English suffered the same fate as the French. The price of South Sea shares took a nosedive, crowds of people lost their life savings, and the British financial system was on the brink of collapse.
One by one, the directors of the South Sea Company were brought to trial, had their estates confiscated, and were sent to prison, some in the infamous Tower of London.
Sir Isaac Newton was caught in the bubble and lost a lot of money. The stockbroker went from being the most popular person in town to an outcast with a worse reputation than any pickpocket, highway robber, or prostitute.
This was a sad beginning for stocks, but matters have greatly improved since then, especially in recent decades. Companies of many types were established in the early s. Merchants who went into business for themselves, or with partners, soon discovered the advantages of forming corporations. Later on, after we got our independence, Americans took to the idea of incorporation far more readily than the Europeans had. None of the other major industrial nations—Great Britain, France, Germany, or Japan—produced as many corporations as we did.
In fact, a few of the companies that opened their doors nearly three hundred years ago are still operating today! This is an amazing feat, when you think of all the wars, panics, depressions, and other calamities the country has been subjected to.
Generations have come and gone, products drifted in and out of fashion, cities burned, forests deforested, neighborhoods destroyed—hardly anything has lasted since the s. But J. Like Rhoads, it was kept alive by quick-witted managers who knew how to change with the times.
Milling was a dying industry, so Dexter got out of its mills and started to produce stationery. From stationery, it switched to tea bags, and from tea bags to glue. Today, it makes high-tech coatings and adhesives for airplanes.
A Baltimore firm, D. Landreth Seed, has survived since —on vegetable seeds. Dexter went public on its st birthday, in At the time of the Revolution there was not one home-grown public company in the country. The earliest to appear on the scene after the Revolution was a bank— the Bank of North America, founded in It still trades there today.
We corrected this problem after the Revolution, but even so, there was a lot of fuss about the federal government sponsoring a bank. Some of the Founding Fathers, particularly Jefferson, distrusted bankers and their paper money. Taking their cue from their European ancestors, our earliest shareholders paid too much for their bank stocks, and they knew very little about what they were buying.
The bidding went higher and higher until it got to the level of ridiculous prices, and on Wall Street, whatever goes up that high must always come down. Bank stocks landed with a thud in the Crash of , the first crash in Wall Street history.
As soon as the dust settled, the New York State Legislature passed a law, similar to the laws passed earlier in London, making it a crime to traffic in stocks.
Stock trading went underground. This was a good lesson to investors in a young country, and it is a good lesson for young investors today. This is the risk of buying stocks: The company you own may turn out to be worthless. It is for taking this risk that people are rewarded so handsomely if they pick the right companies to invest in.
Investors were very happy to own shares in the company that built the bridge over the Charles River in Massachusetts. John Hancock was one of the founders. There was a parade across the bridge, complete with the firing of cannons, followed by a party at which eighty-three original investors were treated to a banquet.
It was a joyous occasion, followed by many joyous years in which investors were paid a dividend. These steady dividends came from the tolls collected from the people who used the bridge to get across the river. Eventually, a second bridge, the Warren Bridge, was built across the Charles River to compete with the first. Once enough tolls were collected to pay off the costs of building this second bridge, the plan was to abolish the toll so people could cross the river for free.
The owners of the original bridge objected to this plan, and filed a lawsuit that went all the way to the Supreme Court. They lost the case, and that was the end of their profitable monopoly. Another successful company modeled along the lines of the Charles River Bridge was the Lancaster Turnpike in Pennsylvania. The Lancaster Turnpike sold shares through a lottery, as it turns out and also paid a nice dividend.
Again, the money came from tolls collected along this sixty-mile road from Philadelphia to Lancaster. Turnpike, bridge, and canal companies were the forerunners of the trolley, railroad, and subway companies that came along a bit later. The Father of the Financial System We all recognize George Washington as the father of our country, but Alexander Hamilton was the father of the financial system.
That part gets lost in the history books, but without the financial system, the political system never would have worked. Hamilton deserves the credit for this. It seems obvious today, but back then, banking was a controversial subject. George Washington agreed with Hamilton about the banks, and even invested in one himself.
Washington was a shareholder in the Bank of Alexandria, which opened near his home at Mount Vernon. Jefferson was a gentleman farmer who believed there was virtue in tilling the soil and living off the land.
He hated factories and the cities that grew up around the factories. As it turns out, Jefferson was no expert on personal finance. He ran through a large fortune and died virtually bankrupt in He was a big spender, particularly on gadgets and on books, and his library had more volumes than Harvard College, which had been in existence for more than one hundred years before Jefferson was born.
He was a tinkerer, a bookworm, and a farmer at heart —the gentlemanly kind who left the farm work to others.
He rejected the European idea that government should be run by a ruling class of snooty aristocrats. Never would Jefferson have imagined that the factories would lure millions of farm workers away from the farms and into the cities and the mill towns, or that factories would be their ticket to a better life, or that heavy industry with all its problems would provide Americans with the highest standard of living in the history of human beings.
The bank was shut down. A second Bank of the United States was chartered in , this time in Philadelphia, but it ran into trouble a few years later when Andrew Jackson was elected president. Jackson was a rough character who came from the wilds of Tennessee.
In spite of his outdoorsy reputation, Jackson was sick most of the time and stayed indoors. Like Jefferson before him, Jackson believed that the states should have more power and the federal government less.
This second Bank of the United States was blamed for a nationwide financial panic in , when a lot of businesses went bankrupt and people lost their life savings and their jobs. This was the first of a long string of panics, which created havoc around the country. So when Jackson was elected president a decade after the panic, he listened to these people and took all the money out of the federally sponsored bank and shipped it off to be deposited in various state banks, and that was the end of the second Bank of the United States.
From then on, the states controlled the banking business and gave out the charters. Soon, every John and Jane Doe with nothing better to do decided to start a bank.
Thousands of banks appeared on main streets and side streets in big towns and little towns, the way chicken restaurants are cropping up today. Traveling within the country then was very similar to traveling abroad today: You had to worry about changing money from place to place.
This is an area in which the United States and Europe have gone in different directions. By , there were three hundred separate banks in the United States, as compared to a handful of banks in England. Today, there are over ten thousand banking institutions in the United States, if you add in all the savings and loans and the credit unions, while Great Britain has less than fifteen. Many of our local banks were shoestring operations that lacked the necessary capital to tide them over in an economic crisis, and there was always a crisis waiting to happen.
Half the banks that opened their doors between and had failed by , and half the banks that opened between and had failed by The banks would take these savings and lend the money to the bridge builders and the canal builders, the turnpike projects and the railroad projects that got America moving. When a bank loaned money to a railroad, or a bridge company, or a steel company, the money came from the savings accounts of the people who put money into the bank.
In other words, all this high energy, this excitement, this hustle and bustle that led to economic progress was financed out of the pockets of the man and woman on the street. Whenever the government needed money for a project, it had four choices of where to get it: taxes, bank loans, selling lottery tickets, or selling bonds. More about bonds on page Whenever a company needed money, it could borrow from a bank, sell bonds, or sell shares of stock.
The idea of selling shares to the public caught on very slowly. The Father of Modern Economics Markets were opening all over the place, and people were buying and selling at a furious pace, and to many people the whole situation was out of control.
Since the goal of this textbook is to facilitate the use of these statistical learning techniques by practitioners in science, industry, and other fields, each chapter contains a tutorial on implementing the analyses and methods presented in R, an extremely popular open source statistical software platform.
Two of the authors co-wrote The Elements of Statistical Learning Hastie, Tibshirani and Friedman, 2nd edition , a popular reference book for statistics and machine learning researchers. An Introduction to Statistical Learning covers many of the same topics, but at a level accessible to a much broader audience. This book is targeted at statisticians and non-statisticians alike who wish to use cutting-edge statistical learning techniques to analyze their data. The text assumes only a previous course in linear regression and no knowledge of matrix algebra.
What happens when a young Wall Street investment banker spends a small fortune to have lunch with Warren Buffett? He becomes a real value investor. But the path was not so straightforward. Spier reveals his transformation from a Gordon Gekko wannabe, driven by greed, to a sophisticated investor who enjoys success without selling his soul to the highest bidder.
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Although we have been successful in our careers, they have not turned out quite as we expected. We both have changed positions several times-for all the right reasons-but there are no pension plans vesting on our behalf.
Our retirement funds are growing only through our individual contributions. Michael and I have a wonderful marriage with three great children. As I write this, two are in college and one is just beginning high school. We have spent a fortune making sure our children have received the best education available. One day in , one of my children came home disillusioned with school.
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