Euronext as Euronothing
The media is rhapsodizing over the impending New York Stock Exchange-Euronext merger, which NYSE Group CEO John Thain describes as creating "the world's most liquid and truly global financial marketplace." A New York Times editorial noted approvingly:
Most important to investors in the exchange companies themselves is the $375 million in potential savings that NYSE Group predicts for a combined entity.
If a combined company can pass the fruits of those savings on to the average investor — not to mention added ease in buying shares of foreign companies — we're all for it.
OK. If the company passes on the savings to the "average investor," who trades maybe three or four times a month, if he's very busy, that would mean savings of ..... goodness. My calculator can't quite count that low. He might be able to buy one more ham sandwich a week, maybe?
And as for the "ease of buying shares of foreign companies," let's just assume for a moment that that's true. Is that really a good thing?
Investors do a remarkably poor job of picking individual stocks, and are usually better off buying index funds, as has been demonstrated repeatedly and as was just pointed out in a fine new book. Overseas stocks are also major subjects of stock fraud. Heck, just look at the spams I get in my inbox every day, mainly from sure-thing Chinese companies.
No, there are plenty of closed end funds that are much better bets for investors than individual foreign stocks -- if bought at below-par premiums to NAV or, preferably, discounts.
Besides, it's anything but clear that the merger would do that. Business Week Online put it best: "In theory, at least, someday investors from any country could readily trade any security listed on any exchange." So in theory, maybe, someday investors will be able to invest poorly everywhere, and not just in the United States.
And then, of course, there is the issue of the trading floor. It may be abolished. Or maybe it won't be abolished. Who cares? As that book (which shall go nameless) described, such "market structure" issues have long been overemphasized by the media.
In summary I am theoretically, maybe, someday, underwhelmed by the whole thing. I sure wish that the media would show a bit less enthusiasm for a merger that is, from an investor standpoint, a total nonevent.
© 2006 Gary Weiss
Wall Street Versus America was published by Penguin USA on April 6.
Click here for its Amazon.com listing and here for more information on the book, from my web site.