Market Pulse: A trip down memory lane
“The Good Old Days” is at times a misused phrase as people remember what they believe were better days. Very often the times were not quite so good.
Case in point: Some look at the investment world today and believe the deck is stacked against ordinary investors in favor of the rich and institutions. The young who have no frame of reference are most likely to believe that. Older investors know that was once very true. It’s not true now.
There was a time when commissions to buy or sell round lots of a stock (increments of 100 shares) were fixed. It didn’t matter who your broker was, the commission was the same and it was substantial.
Now you can buy any amount of stock at any price and pay $4.95 per trade through Schwab, Fidelity, Ameritrade and other discount firms. Ordinary investors are saving literally billions of dollars every year.
Stock prices used to be quoted in fractions, mostly in increments of one-eighth. Now the quote is in pennies with, in most cases, a single penny separating the bid and asked prices. Investors trading in fractions years ago had a minimum spread of 12 cents or in stocks trading above $30 perhaps 25 cents or more. Investors saw a huge savings when decimalization arrived.
As recently as the 1970s mutual fund investors paid front-end sales charges of 6% or 7%. There were only a handful of small no-load funds. Now no-load funds are the rule, not the exception, and ETFs have attracted literally trillions of dollars.
ETFs have no sales charges and expenses are so low that they are barely worth mentioning. Individual investors are benefitting the most.
Then there is the internet, which is reducing costs across the economy and facilitates the flow of information. Years ago investors had few resources with which to evaluate companies and had to rely on brokerage firms, which often had conflicting interests.
With a laptop or smart phone today’s investors have information readily available, the same information only the professionals had in the past. In most cases there is no charge.
Trading on the internet is infinitely faster than it used to be when branch offices sent orders to trading rooms and then to the floor of the NYSE, an exchange that barely exists today (watch CNBC and see how few people are there). Hit “send” on your laptop or smart phone and the order should be filled in one second.
In the past investors wouldn’t know the trade results until information flowed back form the floor to the trading room to the branch office then to the broker who would call the client. Hours could go by.
The bottom line: In truth the “The Good Old Bad Old Days” is more descriptive. Times were good for the brokerage firms, bad for individuals.
David Vomund is an Incline Village-based fee-only money manager. Information is found at http://www.VomundInvestments.com or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial advisor before purchasing any security.
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