What in New York is Really Important…

I did quite a bit of sight seeing in New York today. Unfortunately Alexander Hamilton’s grave was under restoration. Above is a photo of the Trinity Church where the grave is located, and below is a photo of the grave, taken by someone else.

In a way, this ties back to the first post of this blog. The first post referenced the place where Hamilton was born. Today I visited the place where he is buried.

Alexander Hamilton Monument and Grave

I did not bother visiting the New York Stock Exchange. I have seen it before, and I felt no need to walk a few blocks out of my route to see it again. Whenever I go to New York, people inevitably ask me (repeatedly)…Did you go to the stock exchange…Did you go to the stock exchange….Did you go to the stock exchange….?

It’s seen as a modern day pilgrimage to Mecca for the financial advisor. Everyone expects I must go to the New York Stock Exchange and bow before its greatness. This is, in fact, what the brokerage firms used to do with new hires. The big brokerages had training programs in the New York area. One of the field trips was the inevitable pilgrimage to the exchange.

The exchange trades wealth. It doesn’t grow wealth.

This never made much sense to me. Why, in the financial industry, is there such an obsession with the exchange? It is the place where value is traded, but it is not the place where value is created. The driver of investment returns are the operations and productivity of the companies themselves, which has nothing to do with the exchange where existing company shares simply change hands.

Not even the high risk money that gets new ideas started is transacted at the exchange. Initial Public Offerings (IPO’s), where companies actually get new money from investors, are specifically not done over the exchange because it is the first time the shares are sold. The shares can then go on the exchange to be traded after the IPO.

Brokers make money from the trade

But then it hit me as to why the stock exchange itself was such a sacred monument within the financial industry. It may not be where clients make their money….but it is where the brokers and the brokerage firms make their money. Clients make money off of investment returns. Brokers have traditionally made their money from trading activity, and the exchange is where the trading happens.

It also got me thinking about the twisted definition of “success” that I hear so often in the financial industry (and especially here in New York). “Success” is discussed in terms of how much money a mutual fund has raised, or how much money a hedge fund manager has made (for himself). It is all about the manager getting more money to manage. Virtually never am I treated to a discussion of “success” in term of good outcomes for the clients. Oh yeah, the clients…..remember, the people who are actually investing the money. I’ve noticed the thought of client success hardly occurs to people in the industry, especially here.

What grows wealth

A well functioning legal system, private property rights, honest banking, individual liberty, freedom of speech, our nation’s credit worthiness….all of these are much more important to growing the wealth of a nation, and therefore client wealth, than the stock exchange. So why visit the stock exchange while I’m here? Alexander Hamilton’s final resting place seemed much more appropriate.

Photo of Hamilton Monument by Tony Fischer