But I love the long-term potential for the exchanges, because somewhat hypocritically they are out there shopping the world’s exchanges for expansion opportunities. And I think they will be very successful with this. The exchanges are an integral part of our economy, but in many other economies stock and other exchanges are still very new or mostly non-existent. So there’s a lot of opportunity to move into emerging markets in a mutually beneficial way. In a sense the U.S. exchanges are in part a long-term emerging markets play.
I’m still very bullish on the exchanges despite sharp declines in recent weeks. In the past year the Chicago Mercantile Exchange (CME), which I’ve been talking up since it went public, is still up 77%, the Nasdaq (NDAQ) +25%, and since entering the secondary markets less than a year ago the Chicago Board of Trade (BOT) is up 25%, and the Intercontinental Exchange (ICE) up 77%. Only the NYSE (NYX) is down, off 25%, but if you owned Archipelago a year ago, after the April 2005 NYSE merger announcement, then you’ve still got a 32% gain.
In hindsight buying those exchanges that were available a year ago and those that came available since that time would have provided an average return of 47%. That’s 400% more than the average market return, to put things in some sort of realistic perspective.
Obviously, though, these are lofty stocks that are difficult to measure and quantify in a short-term fundamental perspective. But look out five years. If you think a stock has every reason to be much higher five years forward, then that’s a stock you want to buy every time it falls out of favor between now and then. That’s truth trading.
A bonus for me, as a financial writer, has been the NYSE renaming Archipelago to just Arca. Admittedly, I had to Google the former every time I ever wrote about it and I was trading on the Arca ECN from the very start nearly a decade ago.