It's been a bumpy ride these past few years for investors looking for easy ways to make money. Stocks, bonds and real estate have all seen wild swings or simply delivered disappointing results.
But a taxi medallion is one investment that keeps going up in value: Two of them recently sold for a record $1 million each.
A taxi medallion gives the bearer the right to pick up rides for hire. It turns out it's also a great investment vehicle. When New York cab driver Sushil Maggoo bought his in 2003, for example, he paid around $215,000.
Now, it's worth almost $700,000. The value of the medallion more than tripled in just eight years. "It's unbelievable," Maggoo says.
A Niche Investment Opportunity
Maggoo drives a yellow hybrid Lexus, and he's proud of the car. But the most valuable part of his vehicle is the little piece of molded tin affixed to the hood. Even if you've ridden in a lot of cabs, you may never have taken a good look at them.
An analysis by Bloomberg News shows individual driver medallions have increased in value by more than 1,000 percent since 1980. Fleet medallions are also up about the same amount.
In comparison, gold gained 181 percent in the same period. That might make medallions a more attractive investment, but buying a medallion is not as simple as buying gold: You need to become a driver or a taxi fleet owner to do it.
But there is an indirect way to invest: Medallion Financial is the only publicly traded company that makes medallion loans.
"Our company's motto has been: In niches there are riches," says Andrew Murstein, the company's president.
His niche might make some people uncomfortable. The loans he makes are mainly to immigrants with no little or credit record and no collateral.
Sounds risky? Murstein says that's not really the case.
"We have lent over $5 billion to the taxi industry with zero losses," he says. "I am not aware of a single bank in the United States that can make a claim like that."
It's not that drivers never default on their loans, but rather that medallions are so valuable it's easy to repossess a medallion from a delinquent borrower and sell it.
'There's Nothing Like ... A Monopoly'
Murstein's business is built on an idea that's become an article of faith: Medallions will never significantly decline in price. With the exception of a dip after the Sept. 11 attacks, that's largely been the case. But why should this be so? New York City Taxi and Limousine Commissioner David Yassky says investing in a medallion is like purchasing a little piece of New York City.
"I think people are buying these medallions because they know that the city's economy over the long run is a successful one," Yassky says.
For newcomers to New York, it means steady work with real rewards. But Ed Rogoff, a professor of management at Baruch College, says one factor alone really drives medallion prices.
"There's nothing like having a monopoly to keep you profitable," he says.
There are exactly 13,237 taxi medallions in New York City, and that number has held more or less constant since the 1930s.
"When you limit competition you get strong profits, and those profits get reflected in the value of the enterprise — and the value of the enterprise in the taxicab industry is the medallion price," Rogoff explains.
Yet most drivers still make a modest wage. An average taxi driver might bring home about $50,000 a year, with no benefits. Maggoo says he struggled to save enough to buy the medallion eight years ago. Now it's his nest egg.
"I just want to keep [it] for my retirement ... to help me to pay my [bills] when I cannot work," he says.
Until then, he'll be picking up fares in his yellow Lexus, so he can make those monthly payments on his medallion mortgage.