One of the best-performing investments over the last year hasn't come from the stock market or Wall Street – but rather from New York City's famously gaudy yellow taxis.
The value of taxi medallions – the legal right to drive a cab in New York – has soared 49% to a record $1.3 million, far outpacing the 21% return on the Standard & Poor's 500 index, according to a new report.
The good fortunes of taxi owners spring in part from an unexpected source – advances in technology that have made it easier to find and pay for a cab ride, wrote Nicholas Colas, chief market strategist at ConvergEx Group, a global brokerage company based in New York.
The common gripe about technology is that it upends existing industries, often resulting in reduced employment or wages, even as it benefits society as a whole. By contrast, tech appears to have made life better for the city's taxi drivers without an apparent downside, according to Colas.
"What I find most interesting about this exercise is the fact that technology – credit cards and smartphone apps – has served to enhance the value of established status quo rather than its customary role of 'disruptor,'" Colas wrote.
Cabbies have benefited from credit-card readers, which allow riders to pay with plastic. Statistics show riders leave bigger tips with cards (an average 20%) than cash (10%). Colas also expects that smartphone apps pairing riders with nearby taxis eventually will have a similar effect.
Medallion price increases wouldn't be taking place if not for the unique economics of the Big Apple's taxi industry. The number of medallions is capped – there are currently 13,336. And because a medallion is legally required, newcomers can't simply enter the market.
The benefits of technology likely aren't lost on cabdrivers themselves. As Colas points out – and as anyone who's ridden in a New York taxi knows – drivers are a grizzled lot who know their business inside out.
"If you've ever had the chance to meet a medallion owner, you know that these are very tough people when it comes to making money, "Colas wrote. "They know their numbers cold and aren't shy about expressing their point of view. In short, they make the typical Wall Streeter look like slightly pouty 8-year-old."