#83 Investment Compass - Ep.2 - The Birth of the Stock Market

From Amsterdam to Wall Street

Spice, Ships, and the First Shares in Amsterdam (1602)

In the early 1600s, Amsterdam’s harbor was a frenzy of masts and sails. Imagine the scent of spices like pepper and cinnamon wafting from Dutch galleons returning from the East Indies. Amid this excitement, a radical new idea was born: ordinary people could own a piece of these voyages. In 1602 the Dutch East India Company – the Vereenigde Oost-Indische Compagnie or VOC – became the world’s first company to issue public stock, inviting everyone to invest in its trading expeditions. As Article 10 of its charter boldly declared, “All the residents of these lands may buy shares in this Company”. For the first time, a ship’s carpenter, a merchant’s wife, or even a housemaid could become a partial owner of a seafaring venture. The VOC’s launch was essentially the world’s first IPO (initial public offering), and it sparked a financial revolution.

How did it work? Instead of one wealthy patron funding a ship (and risking total loss to pirates or storms), the VOC pooled money from many shareholders. This way, risk and reward were shared by all. The company raised an astounding 6.5 million guilders from 1,143 investors in that first offering. Even people of modest means jumped in: one entry in the VOC’s subscription ledger notes a maid named Neeltgen Cornelis investing her hard-earned 100 guilders. Such broad participation was unheard of before. It was a marvel of the age – the birth of the public stock market. A contemporary marveled that the VOC’s capital came from “every Dutchman” willing to invest, not just wealthy elites.

The World’s First Stock Exchange (Amsterdam, 1600s)

With so many people holding VOC shares, a new problem arose: How could investors cash out or trade their shares? Initially, anyone wanting to sell had to find a buyer and record the transfer in the company’s ledger at the VOC’s office. Very soon, however, an unofficial market for these shares sprang up in Amsterdam. By 1602 the VOC directors even added a provision in the shareholder register allowing free transfer of shares – effectively permitting a secondary market where shares could be bought and sold at will. This small change had big consequences. The buzz of trading moved from a bookkeeper’s table to the public square.

In 1611, Amsterdam built a dedicated stock exchange building designed by Hendrick de Keyser on the Rokin (near Dam Square) – the first structure of its kind. This open-air courtyard, called the Beurs, became the lively heart of the financial world. One surviving painting, “The Courtyard of the Exchange in Amsterdam” (1653) by Emanuel de Witte, shows merchants and brokers of all stripes huddled under its arches, gesturing and bargaining in a cacophony of trade. We can almost hear the shouts about the latest price of VOC shares and the gossip on arriving cargoes. The Amsterdam Stock Exchange is widely considered the world’s first stock exchange, paving the way for every market that followed. As modern historians note, by 1602 Amsterdam’s market for VOC shares had become a prototype of the modern securities market. It introduced practices like continuous trading, price lists, and even short selling – innovations that underpin stock markets to this day.

The atmosphere at the Amsterdam exchange could be both exuberant and anxiety-inducing. Joseph de la Vega, a Spanish-Jewish trader in Amsterdam, wrote the earliest book on stock trading in 1688, Confusion de Confusiones. He described this new stock market with wonder and wry humor: “This enigmatic business which is at once fairest and most deceitful in Europe, the noblest and the most infamous in the world… It is a touchstone for the intelligent and a tombstone for the audacious”. In de la Vega’s dialogues, seasoned investors caution newcomers about the wild swings of fortune. Yet he also quips, “you will see that the stocks do not merely exist for fools but also for intelligent people.” Clearly, by the 17th century, the stock market had already earned a dual reputation: a place of great opportunity and great folly – something modern investors know all too well.

Interestingly, many stock trading practices we consider modern were already present. Short selling? It was invented around 1609 by Isaac Le Maire, a VOC shareholder who speculated on the company’s price drop – much to the outrage of the VOC directors! And derivatives? Forward contracts on stocks were also in use. Amsterdam’s early stock dealers were amazingly sophisticated, inventing new financial tactics on the fly. The coffee shops and taverns near the Beurs rang with arguments about war rumors, spice prices, and the latest dividend gossip. In this Golden Age bustle, the template for all future stock exchanges was forged.

Coffee House Exchanges in London (1690s)

By the late 1600s, the stock fever spread to London. At first, London had no special exchange building, so traders met in the lively coffee houses of Exchange Alley. These establishments – with names like Jonathan’s and Garraway’s – were the Silicon Valley incubators of their day, doubling as stock markets. In 1698, a broker named John Castaing began pinning up a regular list of stock and commodity prices at Jonathan’s Coffee House, marking the first evidence of systematic securities trading in London. If you stepped into Jonathan’s, you’d find a noisy scene: merchants in periwigs cradling cups of coffee, shouting buy and sell orders for shares in ventures like the East India Company or newfangled insurance schemes. (Stockbrokers had been banned from the official Royal Exchange for rowdiness, so they made the coffee houses their domain!)

This informal setup worked surprisingly well. London’s stock traders developed their own lingo and rituals. They even had subscription lists with the latest stock prices, titled “The Course of the Exchange and Other Things”, which Castaing published twice a week. It was in these coffee houses that the seeds of the London Stock Exchange (LSE) were sown. By 1761, stockbrokers had formed a club and eventually built a new “stock exchange” building in 1773 – officially dubbing it the London Stock Exchange in 1801. But long before that, those coffee-fueled trading floors had already seen booms and busts that taught lasting lessons.

One infamous episode was the South Sea Bubble of 1720, a stock frenzy that gripped London. Ordinary folks, nobility, even the King’s mistress – everyone caught the speculative fever. Stock prices of the South Sea Company soared on wild promises of wealth. Many dubious companies also sprang up to ride the wave. One promoter even sold shares in “a company for carrying out an undertaking of great advantage, but nobody to know what it is”. (Yes, that is a direct quote from a prospectus – and eager speculators bought it!) This absurdity illustrates the pure mania that can overtake markets. When the bubble inevitably burst, fortunes were lost overnight. Sir Isaac Newton himself wasn’t spared – after losing a bundle in the crash, the great scientist lamented, “I can calculate the motions of the heavenly bodies, but not the madness of people.”. His wry observation, after witnessing investors lose their heads, still rings true centuries later.

Despite the chaos of 1720, London’s stock market survived and matured. Brokers learned the hard way about trust and transparency. Scandals led to calls for more orderly trading. Eventually, rules were standardized – for example, banning the most egregious frauds and establishing fixed commissions. The coffee house culture of open debate and deal-making helped London’s market evolve into a more formal exchange. Yet the casual, convivial spirit of those caffeine-powered trading halls left its imprint. Even today, the London Stock Exchange’s origins in a coffee shop remind us that markets at heart are simply people coming together to trade – whether under a buttonwood tree or under ornate tickers.

Wall Street’s Roots: The Buttonwood Tree (1792)

On a warm May morning in 1792 in New York City, twenty-four stockbrokers gathered under a tall buttonwood tree at 68 Wall Street. Tired of the disorderly trading that had occurred in coffee houses and curbside, they decided to form an exclusive club for trading securities. They signed an agreement that became legendary – the Buttonwood Agreement, the founding document of what would become the New York Stock Exchange. This brief pact contained two simple rules: (1) the brokers would trade only with each other (forming a closed network), and (2) they would charge a fixed 0.25% commission on each trade. In essence, they created a structured, trustworthy marketplace in a single page of ink. No outside auctioneers, no undercutting – just gentlemen abiding by common rules to instill confidence that trades were fair and debts would be honored.

That buttonwood tree meeting was the humble birth of Wall Street as we know it. Soon after, the brokers began convening in a more comfortable venue – the Tontine Coffee House at the corner of Wall and Water Streets, built in 1793. The Tontine Coffee House (seen on the left in the painting below) was a bustling hub: part stock exchange, part club, part news center. Traders in frock coats packed its rooms, swapping gossip from the docks and bargaining over government bonds or bank stocks. Early American markets traded things like U.S. government war bonds and shares of banks or insurance companies – the young nation’s fledgling enterprises. By 1817, the Buttonwood group had formalized into the “New York Stock and Exchange Board,” adopting a constitution and governance. And by the 1860s, it took the official name New York Stock Exchange (NYSE) and eventually moved into the iconic 18 Broad Street building.

The spirit of cooperation under Buttonwood set important precedents. The fixed commission rule, for instance, remained in place until 1975! And the idea of a members-only exchange (where brokers must abide by rules for the privilege of trading) became the model for exchanges worldwide. In those early days, Wall Street was a far cry from the electronic, global marketplace it is now. Yet if you squint, you can see the resemblance: a close-knit community agreeing on a framework so that buyers and sellers can trust the process. The Buttonwood brokers borrowed much from their European predecessors – even the habit of quoting stock prices in fractions of eighths came from the Spanish pieces-of-eight currency, a practice they adopted. Wall Street, in effect, grew from the seeds planted in Amsterdam and London – adapting Old World concepts to a new American context.

Reflections: How an Origin Story Shapes Today’s Markets

It’s astonishing how many of the core ideas of stock investing were invented in those early centuries. The Dutch pioneered the IPO and joint-stock company to fund voyages, and in doing so they created a blueprint for raising capital that modern startups still use (replace spices and silk with software and AI, perhaps!). Amsterdam gave us the first exchange, proving the value of a central marketplace for liquidity and price discovery. London’s coffee houses showed the importance of information flow – the original “Bloomberg terminals” were gossiping merchants in caffeine-fueled debate, yet they established the first price lists and stock indices. London also provided cautionary tales like the South Sea Bubble, leading to greater awareness of speculative manias and the need for market regulation. And New York’s Buttonwood Agreement demonstrated the power of self-regulation and trust among market participants, a principle underpinning exchanges to this day.

In a quirky way, the past is always present in today’s investing. When you buy a stock on your phone, you’re part of a lineage stretching back to those Dutch merchants scribbling in ledgers. We still use the term “Wall Street” as shorthand for the financial industry – a nod to that buttonwood tree gathering in 1792. We refer to “bubbles” and “crashes” with lessons from 1720 in mind. We expect companies to publish information and pay dividends – practices that started with the VOC (which paid its first dividend in 1612 after reinvesting profits for 10 years). Stock trading today is hyper-fast and computerized, yet the fundamental concept is the same venture launched in Amsterdam: individuals can own fractional shares of an enterprise and trade them in an open market.

Knowing the colorful origin story of the stock market – filled with sailing ships, coffee cups, and shady trees – adds depth to our modern investing experience. It reminds us that investing has always been a human story: bold ideas, collective hope, occasional greed, and innovation born of necessity. The next time you check your portfolio or read financial news, consider that you’re part of a four-century saga still unfolding. We’ve come a long way from trading VOC shares under the roof of the Amsterdam Beurs, but the compass set in that era still guides the Investment world’s journey today. The marketplace might be global and digital now, yet it sails on the same principles of shared risk, reward, and human nature that launched the birth of the stock market all those years ago.