EDU Articles
Popular articles
What are Some of the Biggest Bankruptcies in Recent History?
Before Lehman Brothers and Bear Sterns, probably the most well-known and publicized bankruptcy was the infamous Enron scandal. To summarize, Enron executives, fully aware that the company was insolvent, started to sell their stock, while convincing the general public that the stock would continue to rise and the company was prospering (despite actual horrendous losses). As the stock dropped lower and lower, the executives continued to lie to the public, and most people fell into the trap, convinced that the low stock prices were a great opportunity (the stock was going to rebound any day – or so they thought). Continue reading...
Who are Some of the More Well-Known Investment Managers?
There have been many notable investors who have withstood the test of time. Of those that are still living, Warren Buffett definitely stands out of the crowd. If you had invested $1,000 with him in 1965, the investment would be worth over $6 million today. Some of those who could be considered in the realm of "founding fathers" of sound investment strategy would include J.P. Morgan, Benjamin Graham (author of the famous "The Intelligent Investor"), and John Templeton. Continue reading...
Who is the Most Widely Known Villain of Wall Street?
Throughout the history of the U.S. Stock Market, there have been countless crooks, swindlers, and villains. Money can drive people to cheat, and there have been no shortage of cheaters over the years. Undoubtedly, the biggest hoax in the history of the market is credited to Bernard Madoff, who made off (no pun intended) with over $10 billion of his investors’ money through a massive Ponzi scheme. However, there have been countless other criminal activities, such as the Enron scandal of the early 2000’s. Continue reading...
What is a Ponzi Scheme?
A Ponzi scheme is a scandal where new investment money is used to create the illusion of returns. A Ponzi scheme (named after Charles Ponzi, who in the early 1900’s was the first to effectively implement such a scheme) is essentially a confidence trick. As an example, suppose 10 people each give someone $100 to invest, with the promise of a 10% return (in addition to the $100 principal) in a year. During the course of that year, 20 more people invest $100 each as well (for a total of $2,000 from the second group). Continue reading...
What was the “Dot Com” Bubble?
The late 1990’s saw a huge uptick in the number of tech startups, as the age of the Internet took hold and new companies scrambled for a share of the action. As more and more people began to access the world (wide web) of information, new technology companies became more and more abundant in an effort to tap the commercial potential of having a global customer base. This led to excessive valuations of companies that didn't even yet have earnings, as investors poured money in hoping for the "next big thing." Continue reading...
What were the Biggest Single Day Market Moves?
Since the Dow Jones Industrial Average’s creation in 1896, there have been several crashes and several days of huge gains. The biggest moves can be defined in two ways: either by percentage change or by change in points. In terms of gains, the largest single-day point gain occurred on October 13, 2008, when the Dow rose 936 points (11%) – the sudden leap occurred during a time of wild upside and downside volatility, and was in response to unexpected positive global economic news. Continue reading...
When was the Latest Housing Bubble?
The latest housing bubble burst in 2005, a few years prior to the stock market meltdown. Housing prices peaked in 2005, and over-leveraged homeowners started to feel the pinch of falling property values leading into the 2008 financial crisis. In the 2005 - 2012 period, housing prices fell some 30-80% in various parts of the U.S. Problems emerged when the loans outstanding on homes exceeded the home's value, and when job losses eventually resulted in mass defaults. Continue reading...
What was the "Flash Crash"?
On May 6, 2010, investors around the world were shocked when the Dow Jones Industrial Average fell nearly 1,000 points in a matter of minutes. The market recovered just as quickly, finishing the day down a much lesser 348 points. The so-termed "flash crash" was caused by a trader's technical errors in entering order amounts, which caused a few stocks to post erroneous numbers (notably Procter & Gamble, which showed a 37% loss, before recovering to a 2% loss on the day). Continue reading...
What are “Dark Pools” of Money?
Large institutional investors sometimes trade on “Electronic Trading Crossing Networks," which allow them to conduct trades without publicly exposing them. They are used by financial institutions to move large blocks of shares without public investors even knowing about such transactions. Such examples of networks are “Liquidnet,” “Pipeline,” “SIGMA X,” and many others. It might be difficult to fathom the size of the transactions conducted over these networks, but the ownership of dark pools involves almost every institutional trading house. This is a huge business and regulators are carefully looking into their activities. Continue reading...
What is Insider Trading?
Simply put, insider trading is the crime of trading in a company’s stock based on information not available to the general public. According to the efficient market theory, any publicly available information is immediately "priced-in" to a stock, so any article you might find in a news publication is not going to give you a competitive advantage for a stock's future price movements. Insider trading tips give an unfair advantage to the holder of the information, since the market has not had a chance to react to it yet. Of course, insider trading is illegal and several notorious cases have been well-publicized, like that of Martha Stewart. She was jailed. Continue reading...
What were the Biggest Insider Trading Scandals?
In 2007, Qwest Communications CEO Joseph Nacchio was convicted of making over $50 million dollars through illegal trades. Essentially, Nacchio knew that the company wasn’t doing well, while telling the public that it was on track to pursue highly exaggerated revenue gains. He capitalized on the inflated stock, and was, of course, caught and found guilty. He’s currently serving a six year prison sentence. Continue reading...
How Many Dollars do We Have in Circulation?
According to the Federal Reserve, there are over 1.7 trillion U.S. Dollars in circulation. This number has been drastically increasing throughout the last few years, mostly due to programs such as Quantitative Easing. As of 2016, QE programs have ended and the Fed's balance sheet is shrinking, but M2 money supply still remains at elevated levels. What is the Size of our National Debt? What is Currency in Circulation? Continue reading...
What is the Size of our National Debt?
The total United States national debt is $19.3 trillion as of fiscal year (FY) 2016. Total debt is near what the U.S. produces in annual GDP, and a majority of our national debt is public debt — money owed to those who have Treasury obligations. The U.S. also owes a large amount of money to foreign countries (foreign debt), but a majority of U.S. debt is held domestically. As of June 2012, the three countries who hold the most of our national debt are: Continue reading...
What are some Key Numbers Related to the World Capital Markets?
As of 2014, global GDP was $77 trillion. The total market capitalization of all world stock markets is approximately $70 trillion, and about a fourth of that amount is the U.S. market. The U.S. economy is the largest by GDP, which for 'fiscal year' (FY) 2016 was approximately $19 trillion. The total value of notional derivatives fell to $18.1 trillion. How Many Dollars do We Have in Circulation? What is Currency in Circulation? Continue reading...
What was the Best Day for the Markets?
The best day for the markets, in terms of the largest single-day point gain for the Dow Jones Industrial Average, was October 13th, 2008. It happened when the Dow closed up 936 points in response to seemingly positive news about the handling of the ongoing financial crisis. The market would fall much further however before the next uptrend began, on March 9, 2009. In percentage terms, the biggest gain for the Dow came on March 15, 1933, when the index shot up over 15% (8.26 points) in response to Franklin D. Roosevelt's (FDR) Emergency Banking Act. Continue reading...
What was the Worst Day for the Markets?
The worst day for the markets, in terms of the largest single-day point loss by the Dow Jones Industrial Average, was September 29th, 2008. It happened when the Dow lost 777.68 points in response to the House’s rejection of the proposed bank bailout plan. On October 19th, 1987, however, the Dow dropped 22.61% (508 points) in response to a global domino effect of crashing markets. This is the largest single-day percentage drop to date. Continue reading...
What is the Best Performing Stock Ever?
Based purely on statistics, the “best” performing stock ever between 1957 and 2007 was Phillip Morris (cigarette maker). If you had invested $1,000 into the company in 1957, your investment would be worth a little under $6 million today. Of course, during those 50 years, you would have had to survive the sudden dips and jumps involved without making any rash decisions, something very few investors have the stomach for. Continue reading...
What was the “Tulip” Bubble?
Markets have been around for much longer than most people think. The Tulip bubble happened in the 1500's! In the last decade of the 1500’s, Tulips were brought to Holland from Constantinople by botanist Carolus Clusius. Within a few years, the Tulips began to spread through Holland like wildfire, becoming luxury goods. As demand rose to astronomical levels, prices skyrocketed along with it. Eventually, people would gain and lose entire fortunes on the beautiful (but not that beautiful) plants. Of course, the actual value of the tulip bulbs was nowhere near the thousands of dollars (if the amounts were converted into today’s standards) that the traders paid for them. Eventually, people began to sell their invaluable tulip bulbs for real cash, and a domino effect ensued. Continue reading...
What was the “South Sea Company” Bubble?
The South Sea Company was created in Britain in the 18th Century, by the British government. The purpose of the company was to conduct trade with South American colonies belonging to Spain. The company quickly became a popular investment instrument among British nobility, but the frenzy quickly grew to gigantic proportions as trade picked up, but it wasn't sustainable. The bubble burst a few years later. Continue reading...
How do Market “Bubbles” Burst?
Bubbles, while both intriguing and puzzling occurrences, have always been a part of market and economic cycles. In short, a bubble forms when investors start bidding up the price of an asset well beyond its intrinsic value, based on speculation and euphoria surrounding potential gains. Eventually demand will dry up when valuations are too high, as investors start shunning the risk premium associated with investing. Investors will then race to be the first out of the position, and it ultimately brings all the sellers to the table at once. The bubble then pops. Continue reading...