The End Of The New York Stock
Exchange As We Know It
by Dr. Steve Sjuggerud
January 3, 2006
As of Friday, an era ended on Wall Street. The market for “seats” on the New York Stock Exchange ceased to exist.
It’s not a joke. The New York Stock Exchange (NYSE) is making a major change...
For the first time in its 213-year history, the NYSE will become a for-profit company. Seats (which are not really seats, but are more like memberships giving brokerage firms the ability to trade directly on The Floor) are now officially gone. Today the new system will get started… and ultimately seats will end up converting into cash and shares in a new stock: NYSE Group, Inc.
To mark the end of the NYSE as a private organization, I thought I’d look back and see if we could learn anything from the cost of a seat throughout the history of the Exchange.
We can. The lesson is simple…
There’s a myth that people on Wall Street know what they’re doing. Boy, they really don’t.
You’d think they’d have some inside knowledge and be able to trade. But the price of a seat on the exchange over history is excellent proof they can’t trade at all…
As stocks soared just before the crash of 1929, seat prices on the NYSE reached their all-time highest levels (adjusted for inflation), as you can see in the chart here. In 1929, the Wall Street pros could only see prosperity, and a never-ending demand for stocks from the public. Back then, the big Wall Street firms bid up prices to a high of over $6 million (in today’s dollars).
The lowest low was reached in 1977, when one seat was actually sold for $35,000. Two years later, BusinessWeek ran its now-famous cover story “The Death of Equities.” The magazine predicted alternative investments like gold and commodities would take over stocks for good.
BusinessWeek got it exactly wrong. Alternative investments peaked when that issue came out, and slid for the next 20+ years. Meanwhile, stocks were just about to embark on their greatest rise in history.
Judging by the price of a seat on the NYSE, the Wall Street pros got it exactly wrong too. At the top of the stock market (in 1929, the late 1960s, and 2000), the price for a seat on the NYSE peaked as well. The big brokers on Wall Street believed the hype.
Looking back over history, stock prices hit major bottoms at almost the exact same time the price of a seat hit record lows. It’s uncanny how the price of a seat was such a good long-run indicator of whether or not stocks in general were cheap or expensive.
There are two things to take away from today’s letter…
First, of course, is that Wall Street “experts” are not good buyers and sellers of assets. On the contrary, Wall Street pros are as gullible as anyone, maybe even more so.
And second, judging by current prices in 2006, we’re definitely closer to a high in the stock market than a low…
As of today, the value of a seat on the stock market is near record levels. It’s (very roughly) $4 million… not far from the 1929 record (adjusted for inflation), and well above the 1968 high (adjusted for inflation).
Later this year, we’ll probably hear a lot of hype about shares of NYSE stock. I’m not at all interested. Instead, I’ll use the shares as an indicator, just like the seat prices over the last 100 years.
If the last time around is any guide, when seat prices peaked in 1968 and bottomed in 1977, the time to absolutely load up on stocks might be 9-10 years from today...
Good investing,
Steve
Editor's note: Steve Sjuggerud is a regular contributor to DailyWealth, a free investment newsletter focused on the world's best contrarian opportunities. We write with a simple belief in mind: You don't have to take big risks to make big money with your investments.
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