The invention of shares though, was quickly followed by another development that would eventually give us the term ‘stock market’. When the Dutch East India Company failed to redeem its early shares for money on the date originally planned, shareholders who wanted their money back then and there had little option but to sell their certificates onto others. A lively trade in this developed in an area then known as the Amsterdam ‘Bourse’. Speculation in how successful the Dutch East India Company would be in the future meant that the price of the shares varied and as the Dutch fortunes improved there was greater optimism – and shareholders stood to make considerable sums by selling their shares on. Over time, the term ‘stocks’ came to refer to shareholdings that were bought and sold in this way. It didn’t describe a direct relationship to a company, more a collection of assets that could be bought and sold to make money.
Today, stocks refer to investments in publicly traded companies that can be bought and sold on a stock exchange. The stocks that you are trading are shares, but by using the term stocks you imply that you have less long-term interest in the company you are investing in. If somebody tells you that they own shares, you might legitimately ask which company those shares are in – and how that company is doing. If somebody tells you that they invest in stocks, you wouldn’t necessarily expect them to know the details of which companies and how they are run. Stocks today can be traded quickly and frequently, and they no longer involve the issuing of share certificates that could be hung on the wall to show which companies you own slices of.
This isn’t to say that there aren’t people today with a traditional shareholder relationship to the companies they own slices of. When Royal Mail was privatised, for example, its employees were given shares in the business – and this direct relationship has more in common with those traditional share certificates than it does with the buying and selling of stocks. However, many investors in today’s stock market are unlikely to know exactly which companies they own.