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Paul Mampilly is an American investor, former hedge fund manager and winner of the prestigious Templeton Foundation investment competition. Paul has been featured on CNBC, Fox Business News and Bloomberg TV. He is the founder of the popular investment newsletter Profits Unlimited, ... more

Wall Street’s Glory Days Are Numbered

Date: Thursday, October 26, 2017 12:10 PM EST

“Welcome to Wall Street,” said the investment banker.

The year was 1989, and my college’s financial club had organized a trip to the New York Stock Exchange.

Our guide led us to the floor of the exchange because, back then, that’s where all the action took place.

Orders came flying in by phone, and some people even had portable devices to keep track of their stocks on the go.

As the open got closer, the noise rose to where you could barely hear the person standing next to you. But that was nothing compared to when the minute hand of the clock struck 9:30.

The minute we heard the “ding, ding, ding” of the opening bell, it was pure pandemonium.

Today, the floor is a little less exuberant, being mostly there for show now that a good portion of today’s trading takes place via computers.

But even though Wall Street’s essence has remained the same since it began in 1792, I believe its glory days are numbered.

See, Wall Street still has a monopoly on one essential part of trading … but in time, the internet is going to wipe out this current advantage.

Cutting Out the Middleman

Right now, Wall Street is made up by an army of middlemen.

These are your investment bankers, securities exchanges (like the New York Stock Exchange and the Nasdaq), corporate lawyers, analysts, consulting companies, auditors, accounting firms, rating agencies and all-around paper pushers.

These entities exist for one main purpose: to help sell equity or stock to the public. So if you want in on the action, you have to go through this vast network.

And for this monopoly, you pay a heavy price.

According to PwC, an elite consulting company, investment banks charge a 5% to 7% fee to do an IPO, or initial public offering. This is the first time that a company’s stock is offered for sale to the public.

That means if your company’s IPO is worth $1 billion, investment bankers net as much as $70 million in fees.

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