Esky Lessons

Why the S&P 500 could be the smartest retirement investment on earth!

2010-11-09T19:52:00.005-05:00

Investing can sometimes feel like gambling at a Las Vegas Casino. You buy the hot fund, it goes up, then crashes down, causing you to lose money. So you switch funds, only to have your new fund do the same thing as your last fund. What is happening to your retirement nest egg? All you want to do is get good returns and not lose money the investment you made. How hard can it really be to achieve something that seemingly simple? This is a very common thing that happens to many investors, whether the fund they own is a taxable or tax exempt fund. The S&P 500 is the solution to this problem and will always, over time, give you some of the best returns on earth.

How old is the S&P 500 and what is its origin?

The S&P 500 is considered an index fund that invests almost solely in U.S.-based companies. The Standard and Poor was originally created in the year 1923. Back then it was known as the S&P 90. For over two decade it stayed that way, until it was finally changed in the year 1957 to the format we all recognize, the S&P 500.

What is the S&P 500?

The S&P 500 is a collection of 500 companies from a diverse range of industries representing roughly 70% of all publicly traded stocks, a selection committee is utilized to determine which companies will be part of the index. The companies the committee selects are representative of the publicly-traded industries in the United States economy based on criteria like market size, liquidity, sector representation and other components as well.

Why is the S&P 500 so consistent and successful?

What makes the S&P 500 index to unique is that it doesn't presume to have greater wisdom than the collective market, but instead tries to channel the markets' wisdom to your advantage. Contrast that to the many mutual, hedge and other types of actively managed funds which are run by money managers, whose sole aim is to beat the general market's yearly performance. They do so by buying and selling individual stocks or other investments in their own unique combinations they decide upon . There are thousands of managers and funds working night and day on this goal of getting your money and trying to outperform the general market. Some really do beat the market each year. Those are the ones who end up getting rave reviews by the media, investment magazines and authors. What you don’t hear about is that nearly all fund managers will fail horribly at consistently beating the market.

How do we know it is so hard for funds to beat the overall market?

In 2006, economist Laurent Barras and Russell Wermers of the University of Maryland and Oliver Scalliet of the University of Geneva, in Switzerland, conducted an in-depth research project to understand how many funds actually beat the market by a statistically significant amount. Their findings were astounding at best. In the year 1990, only 14% of active fund managers were able to beat the market by a statistically significant margin. Basically, that means that there was no evidence that year that they are able to beat the general market's performance. Fast forward 16 years to 2006 and the number of funds had that could beat the market by a statistically significant margin was only 0.6% of all funds. That means, 99.4% of all active funds did not beat the market for their investors.

How well over time has the S&P 500 really done?

History is one of the best ways to tell if an investment is good or not in the long run. Over time, what has the S&P 500 index proven to us that merits us trusting our money and possible future on? To find that, we have to do a little math, which thanks to the computer age, makes it very simple. The way to determine the returns on an annual basis that is useful to us is by using something called, CAGR or compound annual growth rate. Basically, it allows us a more accurate way of determining what the yearly return on a stock or investment is so that it cannot be misleading from returns that are highly erratic.
The S&P 500 as we know it today started in 1957 and consisted as basically the U.S. stock market as a whole. A very wise group of individuals came together and gathered all the necessary information from the past to help calculate what your returns would have been starting in 1871 in the general stock market. This is valuable because the S&P 500 mimics the returns of the general market, so getting this historical information allows us to project what returns from the past would have been in index. Here is how you would have fared in different time periods if you had invested in the S%P 500. Of course, some of the periods would have been impossible to invest in, but they show a pattern that is important to notice, the consistency of the general market's growth.

1871-2009 Annual Return Per Year was 6.68%, $1 invested then is worth $7,166 today.

1900-2009 Annual Return Per Year was 6.28%, $1 invested then is now worth $810.

1925-2009 Annual Return Per Year was 6.79%, $1 invested is now worth $267.18.

1945-2009 Annual Return Per Year was 6.81%, $1 invested then is now worth $72.58.

1965-2009 Annual Return Per Year was 4.73%, $1 invested is worth $8 today.

1975-2009 Annual Return Per Year was 7.34%, $1 invested is now worth $11.92

1995-2009 Annual Return Per Year was 5.47%, $1 invested then is now $2.22

2000-2009 Annual Return Per Year was -3.42%, $1 invested then is now worth $0.71

2003-2009 Annual Return Per Year was 2.88%, $1 invested is now worth $1.22

What can be observed from the above data is that over time, an investor can expect to get a 5 to 6 percent a year annual return using the index. There will be ups and downs in the market, but in the end, over time, the index will provide solid, consistent returns.

Taking the data above and more, I did the following three analysis’s. If at a randomly selected starting time period between 1871-2009, you invested for 25, 40 and 50 years, how would you have fared? The reason we chose those time intervals is, most people who save for retirement do so for 25, 40 or 50 years. If you had put all your money into the S&P 500 for that long, what would you have to show for it at the end? After 25 years, on average, you would have returned 6.83% per year. You would have returned 6.61% per year after 40 years and 6.47% annually after 50 years. Those returns are pretty consistent and reliable over time. Almost no fund manager can give you that type of performance over your entire life. This means, instead of putting your money in a fund that will over time, not outperform the market, you should just buy the S&P 500, hold on to it and in 25, 40 or 50 years you will have earned the most you possibly could. Your only job with this new strategy is to find ways to put more money into your S&P 500 investment since you know over time it will grow.

To learn more about the S&P 500 and long term investing strategies you should purchase the following books from the Amazon links below.

Reviews: National Debt Relief

2010-11-09T19:29:00.008-05:00

Being in deep debt can be a real drain on your life. Making monthly payments on a large amount of debt can feel like being at the bottom of a 15 foot pool of water. The pressure is intense, any financial setbacks just get either added to the rest of your debt or from your savings and investments. Overtime, this slowly eats away at your financial stability. You are forced into making worse decisions at every turn. You can't get that car you want because you have too much debt and the interest rate is too high or the amount they will lend you is too low. Credit card companies won't increase your credit limit or lower your rates to give you a reprieve. Having more than $7500 in debt can be absolutely devastating.

Solution To Your Debt Problem:

Luckily, there is a way to solve this problem and get your life back on track. That simple fix is debt settlement. Many people know about bankruptcy which can destroy ones credit for nearly a decade but this solution is much better. Your credit score is not destroyed. You pay down your debt, which improves your credit score and best of all, you pay off your debt and no longer have monthly payments to make.

The company I recommend for solving your debt crisis is National Relief. I like them because they focus on customer service, showing you all your options and educating you so you can make the best decisions. This is the most important thing you can ever get, personalized help to solve your problem and people who care about you and want to help you. You need someone on your side that can fight for you. Yes, there are many companies that advertise debt relief, but National Relief is different from the others.

Who is National Relief and Why They Are Better For You?

National Relief is one of the largest and most respected debt settlement companies in the United States. Their specialty is debt settlement and they can help negotiate reductions in the amount you owe and help you pay it all off in 12-36 months. They focus on getting you out of debt and financial instability for the least possible cost to you. When they work with you they help you so there is no bankruptcy, credit counseling or debt consolidation. Get your life back from your creditors and start spending those monthly payments on you and your family instead of being trapped in a debt spiral.

How do I know National Relief isn't a scam or not the best solution for me? Well, the IAPDA(International Association of Professional Debt Arbitrators) has accredited them. Besides that, the USOBA or (States Organization for Bankruptcy Alternatives) also recognizes National Relief as a leader in what they do best, solving your debt crisis. Finally, The Association of Settlement Companies(TASC) constantly audits National Relief to make sure they are providing exactly what you would expect, world class service and solutions to you. Repair your debt crisis with them today to keep you financially sustainable for the long term. Don't allow debt to trap you for the rest of your life. Click on any National Relief link in this site to start your road to recovery today!

Here are some books I recommend reading to learn more about debt, debt free living and how debt affects society today. I highly suggest clicking here and adding them to your wish list on Amazon since these are definetly a must read.

Reviews: LifeLock

2010-08-07T16:53:00.001-04:00

LifeLock helps protect your identity even if your information falls into the wrong hands. They will provide you with early notification of identity threats, search the web for the illegal selling of your information, help cancel and replace the contents of your lost or stolen wallet, verify change of address requests and much, much more.

Why do I need LifeLock????

One in six people fell victim to identity theft in 2009, costing consumers and businesses over $50 billion dollars. Only twenty-eight percent of those people fell victim to financial identity theft, which is the easiest to repair. The other seventy-two percent of identity thefts were medical, drivers-license, social security and character/criminal identity theft.

The LifeLock Difference:

The single most important factor in protecting your identity is minimizing the lead-time available to the thieves before detection. Most individuals who have had their identities stolen don't realize it for many months, and usually after substantial damage has been done to their credit and finances. Although, credit-monitoring services certainly can reduce this lead time, even a one or two day delay can often be enough time for a thief to do substantial financial and credit damage to you. This is why LifeLock stands out above the rest of the competition. The focus at LifeLock is on upfront prevention versus after the fact monitoring and recovery. This allows you to rest easy, since the credit that you worked so hard for stays secure.

$1 Million Service Guarantee

If you become a victim of identity theft while you are a LifeLock member because of some failure or defect in our service, contact them and they will act on your behalf to repair any damage. They will spend up to $1 million to hire lawyers, investigators, consultants and whatever else it takes to restore your name and help you recover the direct losses from the identity theft.

What to expect if you invoke the $1 Million Total Service Guarantee: In most cases, your name can be restored within 30 days. Here's how it works: Upon verification of the claim, they will assign a Member Services Agent who will continue to be your contact throughout the resolution of your case. You will have a conference call with a third party expert and your LifeLock representative to assess the facts of your case and determine the type and nature of the identity theft that has occurred. A third party Recovery Specialist is then assigned to the case. The Recovery Specialist will: Consult with you, explain your rights as a victim, educate you on the recovery process, obtain additional information that is necessary to proceed with the recovery process, give you the pre-fill forms, give step-by-step instructions necessary for your state jurisdiction, type of identity theft and send over a Power of Attorney form that will allow them to act on your behalf.

You will need to: follow the step-by-step instructions provided to you, sign and notarize appropriate documents, file a police report, in person, as required by law, send back the documents, in the pre-addressed, overnight envelope provided and finally upon the closing of the case, they will call you to ensure that your identity has been recovered to your full satisfaction.

What items or costs does the $1 Million Total Service Guarantee NOT cover?

Their $1 Million Total Service Guarantee does not cover: lost wages or business profits, loss of business or lost opportunities and direct out-of-pocket expenses like postage stamps, gas or mileage to go to local authorities, or any notary public fees, etc. The guarantee does cover the cost for lawyers, investigators, case managers but not any direct losses as a result of the theft. Under the Terms and Conditions, NO money passes directly to their LifeLock members. Click here to visit their Terms & Conditions page and read the section on their Service Guarantee.

Lifelock offers two distinct levels of protection

LifeLock offers two distinct levels of protection that you can obtain. Standard LifeLock and the LifeLock Command Center which both offer eRecon, TrueAddress, the LifeLock Identity Alert System, reduce pre-approved credit offers sent you, the WalletLock, the $1 Million dollar guarantee and of course a 24 hour a day phone access to Member representatives.

The difference between standard LifeLock and LifeLock Command Center is in the detection services offered.

The LifeLock Command Center offers users:

• LifeLock Personal Breach Detection

• payday loan alerts

• sex offender registry alerts

• public records alerts

• alias records alerts and court record alerts.

The LifeLock Command Center is available to users for only $15 a month with the Standard LifeLock costing only $10 a month. Either way you can’t go wrong with LifeLock protecting your social security number, good name and credit.

Clicking on any LifeLock link throughout this website will enable you to receive 10% off and start protecting yourself with their award winning service.

A Better Way to Manage Your 401k and Long Term Investments

2010-07-17T21:00:00.101-04:00

Every year millions of investors lose out because many of the funds that investment companies offer are not in their best interests financially in the short term or long term. The problem is, for a myriad of reasons, these investment funds that are offered have multiple hidden costs, lower returns and offer less flexibility to the investor. For an unsuspecting investor, this news can come as a shock and yet another way these companies bilk them out of their own money. Using index funds and ETF’s allow investors to get the most for their money and give them the best opportunity to grow their money.

What are Index and ETF Funds?

Index funds are relatively simple to understand, their goal is to mimic the price movements of: a financial market index or a measure of the market. The nice thing about them is that they have a very specific set of rules that spell out what investments the fund will own. That allows the investor to know what an index’s value will be based on and what will be held in the fund continuously regardless of what is happening in the market. Once you understand Index funds, ETF’s become very easy to understand since they are really just a more intricate form of Index’s funds. Like Index’s, ETF’s hold asset classes such as stocks, bonds, currencies, or other more exotic forms of assets.

Quick History of Index Funds and ETF’s.

John Bogle created the first index fund on December 31, 1975. During his college years at Princeton University, some time earlier he came to the conclusion that most mutual funds do not outperform the standard market averages. Initially, the world laughed at his idea of an Index fund for an investor to purchase, they thought it was the worst thing an investor could possibly do. One person in particular who really didn’t like it was Edward Johnson, the then Chairman of Fidelity Investments. He once stated that, “He could not believe that the great mass of investors are going to be satisfied with receiving just average returns.” Looking back at his quote, you can just laugh, knowing that it is highly unlikely that over the long term any actively managed fund you invest in will consistently and totally beat the general market.

How much money can you save with Index Funds or ETF’s?

There are two primary sources of excess costs that are added to an investor’s yearly bill if they invest in funds that are not index or ETF’s. The first is annual fees for management of the fund. Basically many mutual funds charge investors somewhere between 1.3%-3.5% per year. These fees are how they stay in business and earn a profit. Consider this, the average Index Fund or ETF will charge you anywhere from 0.09%-0.89% per year. Now that seems like a small amount until you realize, most mutual funds are charging on average 1.1%-1.5% more per year just for them to manage your investments. Now lets do a scenario to see how much this will cost us over 10, 20 and 40 years. We will assume that somehow this fund is growing at 7% on average per year. We will invest $10,000 initially and never put a dollar more into this fund. All the growth will come from in the form of appreciation from the investments the fund makes and will only have a 1.35% fee per year for the mutual fund. We will compare this to an Index/ETF fund that also grows at 7% a year and has a .35% per year fee. Below is how it went for our different time periods:

· After 10 years, our $10,000 is now worth $19,672, but wait, you had to fees to pay so, our high priced mutual fund earned us $17,326 and the Index/ETF returned to us $19,037.

· After 20 years, our $10,000 is now worth $38,697, after fees, $30,019 with the mutual fund, $36,242 with the Index/ETF fund.

· After 40 years, our $10,000 is now worth $149,744, after fees, $90,111 with the mutual fund, $131,351 with the Index/ETF fund.

Lets analyze the difference of the two options given to the hypothetical investor above to see how much more the mutual fund costs the investor after each time period. After 10 years the investor paid $1,711 dollars more in fees, in 20 years the investor an additional $6,223 in fees and finally after 40 years the investor paid $41,240 MORE in fees. That money could have been growing and working for the investor, instead the mutual company made a fortune and worst of all for the investor is that typically less than 1% of all mutual funds beat the markets on a regular basis. So you paid more and got less, Wal-Mart would be ashamed if they had to change their slogan to this! The total cost of the index fund for the investor, after 10 years is just $635, 20 years $2,455 and 40 years is $18,393, which is still a lot, but not even close to what the mutual fund would have taken you for.

How could it get any worse than this for the mutual funds investors? Well, if the fund is in a taxable account, it can get very, very bad! The reason being, index funds and ETF’s almost never sell their initial investments and they don’t have to sell stock to let people have their money when they want it from back from the fund. When investors have a mutual fund, the fund is constantly buying and selling assets, creating a taxable income for the investor, plus when someone needs to cash out their money the mutual fund sells more stock to pay them thus creating more taxes for everyone to pay. What is interesting, is that with ETF’s and Index Funds you are only buying shares in the index so you pay taxes when you sell the investment, for the most part. Until then, you don’t pay any taxes; your money just grows and grows for you. Of course if this is a 401k or tax-exempt investment you don’t have to worry the tax costs. The tax liability and fees are just two of the many reasons why you should buy index funds and ETF’s, instead of mutual funds since it will allow you to get the most for your money and give you the best opportunity to grow your money the most you possibly can.

Why Index Funds and ETF’s are better?

Index Funds and ETF are safer for you as an investor because you don’t have to worry about what is called “style drift” and you have more control of your investments. The term “style drift basically means that sometimes mutual funds decide to go outside of what they describe to you as their investment style to increase their funds returns. This can be very dangerous, moving some or most of a funds money into a different investment strategy without investors knowing about it could greatly increase their money’s risk if these assets have a bad day with the markets. One perfect example is the once successful Bear Stearns. This genius company had a series of mutual funds that invested in mortgages for their clients. The idea was these mortgages they were buying were 90% prime (very, very excellent credit history) loans and 10% at most were going into sub-prime loans. Well, at some point the fund manager decided, he can increase the funds performance if 40-60% of the money was tied up in risky, sub-prime mortgages and other exotic forms. Everything was fine, this fund outperformed the market until one day these types of loans started to see dramatically higher defaults. The value of these loans to an investor started to plummet. To sum things up, investors lost a lot of money and had no clue they were buying these dangerous assets. So moral of the story, just because they say they are buying a style, doesn’t mean they really are.

Another important thing Index Funds and ETF’s offer an investor is control and flexibility. If you target your money into certain types of investment strategies, you know where your risk is, for example, if you buy a real estate ETF and real estate starts to get very bad, you can sell it and buy something else that isn’t going to lose all your money. You have flexibility to, on the fly change your asset allocation (how your money is divided between your different investments), which can save you a lot of money if things get bad. The risk that your fund is participating in style drift and lack of flexibility are yet another set of reasons why you should buy index funds and ETF’s, instead of mutual funds since it will that enable you to get the most out of your money and give you the best opportunity to grow your investments.

Investing can and is risky for everyone who participates and even for some who don’t. You need to be able to preserve your money from all sorts of threats. Some of those could be fees, maybe increased taxes, style drift or lack of control and even flexibility. To guard you from that, use Index Funds and ETF’s, which will enable you to leap right over many of those problems and get you closer to your investment goals than other alternatives. Vanguard is probably the safest bet for Index and ETF assets if you can use them, because they are a not for profit company so they will always have the stated goal of giving you the best value possible. Other companies may be good as well, but nearly all the others are for profit companies that have shareholders to look after. Investing is like being in a boat in the middle of the ocean, sometimes there is storms and sometimes it is calm but it always requires doing what is best for you and your boat so remember, use Index Funds and ETF’s and you will survive the monsoons and always be on top of the waves!

To learn more about index funds, ETF's and investing I highly recommend purchasing one of the following books mentioned below. Click on any of them to learn more about them.

Lesson 2 How Trading Works on Different Exchanges: Open Outcry Trading

2010-07-01T15:39:00.009-04:00

Open outcry exchange trading is the original style of trading that stock and commodities brokers used to use. Today it is a much smaller segment of total market trading, but still very important. In open outcry exchanges the method of communication between traders involves shouting and the use of hand signals to transfer information, primarily about buy and sell orders. The part of the trading floor where this takes place is called a "pit".
Examples of markets, which still utilize this type of system are; the New York Mercantile Exchange, the Chicago Mercantile Exchange, the Chicago Board of Trade, and the Chicago Board of Options Exchange. The open outcry system is being replaced all over the world by electronic trading systems. Proponents of electronic trading make the claim that they are faster, cheaper, more efficient for users, and less prone to manipulation by market makers and broker/dealers. On the other hand, many traders still back the open outcry system because the physical contact allows traders to speculate as to a buyer/seller's motives or intentions and adjust their positions accordingly.
Floor hand signals are used to communicate buy and sell information in open outcry exchanges. Traders typically flash signals across a room to make a sale or a purchase. Signals that occur with palms facing out and hands away from the body are an indication the gesturer wishes to sell. When traders face their palms in and hold their hands up, they are gesturing to buy.

Numbers one through five are gestured on one hand, and six through ten are gestured in the same way, only held sideways at a 90-degree angle (index finger out sideways is six, two fingers is seven, and so on). Numbers gestured from the forehead are blocks of ten. Blocks of hundreds and thousands can also be displayed. The signals can also be used to indicate months, specific trade or option combinations, or additional market information.

The Chicago Mercantile Exchange(CME) first invited members to trade futures contracts on agricultural commodities via the open outcry system. Open outcry was and still is an efficient means of "price discovery". It allows buyers and sellers to arrive at the best prices given the supply and demand for a futures or options product. When you call your broker and tell him to make a trade on your behalf, he relays that message to the trading floor, where a runner then relays the message to the floor broker, who then executes the trade. The runner then relays the trade confirmation back to your broker, who tells you how it went. Finally, the trade reporters on the floor of the exchange watch for executed trades, record them, and transmit these transactions to the exchange, which, in turn, transmits the price to the entire world almost simultaneously.

If you are interested in learning more about open outcry exchanges or other types of exchanges, I recommend purchasing the following books to increase your knowledge on the subject.

Lesson 1 Stock Exchanges and History of Exchanges

2010-07-01T13:59:00.034-04:00

The Beginning:
Stock exchanges allow individuals and business's a place to trade marketable securities with one another. Companies or governments issue or redeem securities on stock exchanges. To understand the need for stock exchanges we must first go back in time, very far back in time, to see the first example of a stock exchange. One of the first recorded exchanges was founded in the 12th century. It allowed banks to manage and deal with the debts of communities that were economically based in agriculture. This trading idea quickly spread all over Europe.
One of the next places to have exchanges was in Venice with bankers during the 13th century who were trading government securities. Other communities such as Pisa, Verona, Genoa and Florence also began trading securities. During this same time period, we see Bruges, in Belgium, exploding onto the map. While many speculate the Bruges was the first exchange in the world, one thing no one doubts is how it quickly became the power house in the area. The initial start of the Bruges came as commodity traders gathered inside the house of an individual named Van der Burse. The Bruges ideas spread to places like Ghent and Amsterdam as well.
The Beginning of Publicly Traded Companies:
The first joint stock company to ever be started was done so by the Dutch. Joint stock companies were a novel idea at that time. They allowed shareholders to invest in a business venture. The difference was that the owners would be paid a share of the profits or be liable for their share of the losses the venture produced. This was the first time in history that business ventures could be taken on without putting any one single investor at too large a financial risk, while ensuring a very profitable opportunity as well.
The first company ever formed as a joint stock company was the Dutch East India Company, in 1602. The Dutch East India Company issued its first shares, which happened to be the first ever IPO (Initial Public Offering) in the world. It issued stock and even sold bonds to investors. The sale of their shares took place on the Amsterdam Stock Exchange.
Many decades later, in 1688 to be exact, the London Stock Exchange was born. Trade in the London Stock Exchange began with the need to finance two voyages: The Muscovy Company's attempt to reach China via the White Sea, north of Russia, and the East India Company's voyage to India. Unable to finance these expensive journeys privately, the companies raised the money by selling shares to merchants, giving them a right to a portion of any profits eventually made. The idea soon caught on. It is estimated that by 1695 there were 140 joint-stock companies. The stock trading was centered around the City's Change Alley, in two coffee shops: Garraway's and Jonathan's.
Stock Exchanges were also developing in Germany. The origins of the Frankfurt Stock Exchange go back to the 9th century with Emperor Louis the German issuing a letter to hold free trade fairs. By the 16th century Frankfurt developed into a wealthy and busy city, with an economy based on trade and financial services. In 1585, a stock exchange was established to set up fixed currency exchange rates to allow for trade in different currencies.
The Amsterdam Stock Exchange is considered the oldest in the world. It was established in 1602 by the Dutch East India Company (Verenigde Oostindische Compagnie, or "VOC") for trading in its stocks and bonds. It was subsequently renamed the Amsterdam Bourse and was the first to formally begin trading in securities.
America's Stock Markets:
Over in America, it took nearly another century for our first official stock exchange to emerge. The first exchange in America was created on the street corner of 68 Wall Street, in New York City. They called the agreement the Buttonwood Agreement, since it was signed by twenty-four brokers under a buttonwood tree. The name changed to the New York Stock and Exchange Board some time later. The New York Stock and Exchange Board rented a place at 40 Wall Street, in 1817, for only $200 a month. This location served them well for almost 20 years, but was destroyed in New York's Great Fire in 1835. Finally, about thirty years later, during the Civil War, the name was changed once again to its current name, the New York Stock Exchange. Back in those days there was no internet, radio or television. Most people got their information from word of mouth, newspapers or short pamphlets. One such pamphlet was the "Customer's Afternoon Letter," which was a daily two-page financial news bulletin produced by Charles Dow. This type of bulletin, or news service, was the forerunner of news services like the Wall Street Journal. Since the year 1884, the "Customer's Afternoon Letter" included a stock average called the Dow Jones Averages. This small list contained nine railroad companies and two industrial companies. You may recognize that last name of Dow, since it is the same name as the stock index, The Dow Jones Industrial Average. When it did make its transition, in 1896, to the Dow Jones Industrial Average, it included 12 stocks from America's leading industries.
Many years later, with the computer revolution just starting, the world needed an electronic stock exchange. In 1971, we got just that, the National Association of Securities Dealers, or for short, NASDAQ. This was, at first, just a bulletin board for buyers and sellers to see posted prices but did not allow actual orders to take place through computers yet. With prices viewable on a screen to everyone, the "spread," or difference between the bid price(buy) and ask price(sell) of a stock traded on an exchange fell significantly. Even though the NASDAQ is a computer based trading system, it wasn't until the year 1987, that computers were finally utilized to process trades. Up until the 1987 stock market crash, all orders were made via the phone, where brokers called each other. During the Black Monday market collapse, when brokers tried to call each other to sell or buy stock, they were avoiding answering their phones. Since there was no liquidity or trading happening in the market, stock prices spiraled downward, with what seemed like no end in sight. This was a problem for the exchange. When panic hit the market, if no one was willing to trade with each other, the prices of everything on that exchange could fall to unthinkable lows, causing massive losses for everyone. To solve that problem, they created the Small Order Execution System (SOES). It allowed brokers to trade with market makers who would always honor trades regardless of the conditions on the market.
In 1898, the Chicago Butter and Egg Board was established as a not for profit organization. The name was changed to the Chicago Mercantile Exchange (CME) in 1919. The CME specializes in commodities, derivatives and futures trading. Today on the CME, many other financial instruments are traded like; interest rates, equities, currencies, commodities, weather, real estate derivatives, options and futures. The CME is the largest options and futures market in the whole world.
The Chicago Board of Trade (CBOT), established in 1848, is the world's oldest futures and options exchange. More than 50 different options and futures contracts are traded by over 3,600 CBOT members, through open outcry and e-Trading systems.
The concerns of U.S. merchants to ensure that there were buyers and sellers for commodities resulted in forward contracts to sell and buy commodities at future dates. This means, merchants wanted to buy commodities in future dates and sellers were concerned about what the price would be in the future. Forward and future contracts allow both parties to lock in the price they pay for a commodity in advance, thus ensuring everyone is protected from sharp price changes before delivery date on the contract. Credit risk also remained a serious problem in the economy. The CBOT solved this problem by providing a centralized location, where buyers and sellers could meet to negotiate and formalize forward contracts. In 1864, the CBOT listed the first ever standardized "exchange traded" forward contracts, which were called futures contracts.
The Chicago Board of Trade established the Chicago Board Options Exchange(CBOE) in 1973. This was the first exchange to list standardized, exchange-traded stock options. They allowed the option to purchase a stock at a future date for a specified price.
The Wall Street Journal estimated that globally, as of April 11, 2007, the market capitalization of the derivatives markets (futures, options, swaps, forwards, etc.) exceeded $450 trillion dollars. US stock exchanges had approximately $30 trillion and the rest of the worlds stock exchanges totaled another $20 trillion. Global fixed income markets(bonds, etc) totaled to roughly $65 trillion.
The origin of the New York Mercantile Exchange (NYMEX) can be traced to1872, with a group of Manhattan dairy merchants, who got together and created the Butter and Cheese Exchange of New York. Soon, egg trade became part of the business conducted on the exchange and the name was modified to the Butter, Cheese, and Egg Exchange. Finally, in 1882 the name changed to what we all know it as today, the New York Mercantile Exchange and opened trade to dried fruits, canned goods, and poultry.
The New York Mercantile Exchange (NYMEX) is the world's largest physical commodity futures exchange, located in New York City. Its two principal divisions are the New York Mercantile Exchange and Commodity Exchange, Inc (COMEX). The New York Mercantile Exchange handles billions of dollars worth of energy products, metals, and other commodities. They are bought and sold on the trading floor and the overnight electronic trading computer systems. The prices quoted for transactions on the exchange are the basis for prices that people pay for various commodities throughout the world.
The AMEX started out in 1842 as a market at the curbstone on Broad Street near Exchange Place street, NYC. The curb brokers gathered around the lamp posts and mail boxes, resisting wind and weather, putting up lists of stocks for sale. As trading activity increased, so did the volume of the transactions. The shouting reached such a high level that stock hand signals had to be introduced so that the brokers could continue trading. In 1921 the market was moved indoors to the building at 86 Trinity Place, Manhattan, where it still resides. The hand signals remained in place for decades even after the move, as a convenient means of communication. AMEX's core business has shifted over the years from stocks to options and Exchange-traded funds, although it continues to trade small to mid-size stocks.

Here are some of the many stock exchanges in the world:

Sydney Futures Exchange, Australia
Australian Stock Exchanges, Australia
Shenzhen Stock Exchange, China
Stock Exchange of Hong Kong,Hong Kong
Hong Kong Futures Exchange,Hong Kong
National Stock Exchange of India,India
Bombay Stock Exchange, India
Nagoya Stock Exchange,Japan
Osaka Securities Exchange, Japan
Tokyo Grain Exchange, Japan
Tokyo International Financial Futures Exchange (TIFFE), Japan
Tokyo Stock Exchange, Japan
Paris Stock Exchange, France
Frankfurt Stock Exchange, Germany
Athens Stock Exchange, Greece
Italian Stock Exchange, Italy
Amsterdam Stock Exchange, The Netherlands
Oslo Stock Exchange, Norway
Lisbon Stock Exchange, Portugal
Russian Securities Market News, Russia
Barcelona Stock Exchange, Spain
Madrid Stock Exchange, Spain
MEFF: (Spanish Financial Futures & Options Exchange), Spain
Stockholm Stock Exchange, Sweden
Swiss Exchange, Switzerland
FTSE International (London Stock Exchange), United Kingdom
London Metal Exchange,United Kingdom
London InternationalFinancial Futures and Options Exchange, United Kingdom
Tel Aviv Stock Exchange, Israel
Montreal Stock Exchange, Canada
Toronto Stock Exchange, Canada
Vancouver Stock Exchange, Canada
Winnipeg Stock Exchange, Canada
Mexican Stock Exchange, Mexico
AMEX, United States
New York Stock Exchange (NYSE),United States
NASDAQ, United States
The Arizona Stock Exchange, United States
Chicago Board Options Exchange, United States
Chicago Board of Trade, United States
Chicago Mercantile Exchange, United States
Kansas City Board of Trade, United States
Minneapolis Grain Exchange, United States
Pacific Stock Exchange, United States
Philadelphia Stock Exchange, United States
Rio de Janeiro Stock Exchange, Brazil
Sao Paulo Stock Exchange, Brazil
Caracas Stock Exchange, Venezuela
Venezuela Electronic Stock Exchange, Venezuela

These are not all the exchanges in the world, just some of the most common ones that people hear or talk about.

If you are interested in learning more about stock exchanges, how they work and their history, I recommend purchasing the following books to increase your knowledge in the subject.