The commission to trade stocks 50 years ago was about 1% per transaction. If you ask a Millennial trading stocks what a commission is, you would just get a blank stare because they wouldn't know what you are talking about. Mutual funds typically charged 1% or more in expense ratios with front-end or back-end loads of 3% or more. Charles Schwab and Vanguard upended those business models in the 1970s and 1980s and the Internet brought costs almost to zero.
The brokerage commission to sell a house was 6% 50 years ago. Today it is... 6%. 50 years ago, the brokers had to do a lot of work because everything was on paper, even MLS, and they had to physically research things. Homebuyers would have to look in the newspaper real estate listings to see what was for sale. Computerized MLS came along, so their research could now be done on a computer in 1975. That was and is a closed system, so you had to pay MLS fees as a broker to access the information.
The 6% commission is because the access to a single computer database contractually requires a standardized commission structure, which is where anti-trust comes in. We are probably going to watch the equivalent of the Ma Bell breakup and reformation of new ecosystems for buying and selling houses over the next decade. It is one of the last few "old way" pre-Internet consumer-facing business structures still standing, but it is falling.
Creative destruction may be benign for a broad index of stocks, equal weighted, but it seems to me to be a threat to the current winners in today's market. A clue to euphoria is that there are more stories about Nvidia's stock market performance than its admirable real world achievements.
The commission to trade stocks 50 years ago was about 1% per transaction. If you ask a Millennial trading stocks what a commission is, you would just get a blank stare because they wouldn't know what you are talking about. Mutual funds typically charged 1% or more in expense ratios with front-end or back-end loads of 3% or more. Charles Schwab and Vanguard upended those business models in the 1970s and 1980s and the Internet brought costs almost to zero.
The brokerage commission to sell a house was 6% 50 years ago. Today it is... 6%. 50 years ago, the brokers had to do a lot of work because everything was on paper, even MLS, and they had to physically research things. Homebuyers would have to look in the newspaper real estate listings to see what was for sale. Computerized MLS came along, so their research could now be done on a computer in 1975. That was and is a closed system, so you had to pay MLS fees as a broker to access the information.
The 6% commission is because the access to a single computer database contractually requires a standardized commission structure, which is where anti-trust comes in. We are probably going to watch the equivalent of the Ma Bell breakup and reformation of new ecosystems for buying and selling houses over the next decade. It is one of the last few "old way" pre-Internet consumer-facing business structures still standing, but it is falling.
Great. I’m hopeful that AI will do much more than help us make bad decisions faster.
Great piece
Creative destruction may be benign for a broad index of stocks, equal weighted, but it seems to me to be a threat to the current winners in today's market. A clue to euphoria is that there are more stories about Nvidia's stock market performance than its admirable real world achievements.