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The Long Term Investor

Discussion in 'Investing' started by WXYZ, Oct 2, 2018.

  1. WXYZ

    WXYZ Well-Known Member

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    NOT real bothered by the market drop today. I expect very ERRATIC conditions from now till year end due to the election. BUT......regardless of politics......the markets go up and down. Corrections ARE normal and necessary. This little pause and back-filling of the markets after they jumped ahead is completely normal. I also.......imagine......that much of this stuff is part of the WHIPSAWING that is inevitably going to occur to the millions of young males day trading on Robinhood. As they get BURNED they are going to bail out from investing.
     
  2. WXYZ

    WXYZ Well-Known Member

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    EVERY position......except TSLA.......in the RED today as expected. PLUS I got beat by the SP500 by .14%. Also expected. JUST a dull all around day today. We might be in the start.....OR.......middle of a little early fall, late summer, correction. We are WAY past due for one this year. In a few weeks we will be at the start of 3rd quarter earnings and that will drive the markets along with........of course.....the election.
     
  3. WXYZ

    WXYZ Well-Known Member

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    TODAY......not much going on. My accounts are DEAD FLAT at the open with ALL of them showing either a gain or loss of about $200. Another typical short term day with no real clear direction.

    SO.......being a long term investor.....to amuse myself I decided to see how AAPL and TSLA are performing.......versus.......the research that shows stocks falling in the quarter following a split. So far.......both stocks are following the course that the research predicts. BOTH are down from their closing price on August 28 when the split occurred at the close.

    SO......two weeks post-split......here is where they are:

    APPLE: Current price, today, $450 per share. Closing price on August 28, $499.24. Loss since the split 9.8%.

    TESLA: Current price, today, $1815 per share. Closing price on August 28, $2213. Loss since the split 17.9%.

    So.......this tiny little sample..........NOT statistically significant.......two weeks post split is CONFIRMING the academic research that shows that in the short term time span following a split it is LIKELY that a stock will be negative. THIS has also been my general experience and expectation over my investing life.

    For those that like to SPECULATE or SHORT TERM TRADE on stock splits...........the lesson is........buy on the announcement and hold till some time close to the day of the split. SELL before the actual split occurs.

    The BIG LESSON is.......there is absolutely NO GUARANTEE that you will make any money on short term speculation, even a split. Invest for the long term and build wealth. FORGET the BRAGGING RIGHTS and EGO satisfaction that is often part of the basis for short term trading.
     
  4. T0rm3nted

    T0rm3nted Moderator
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    I don't necessarily disagree with you, but AAPL was up 10% just 2 days AFTER the split, so it depends what short-term time-frame you want to look at. I'm not sure if they are down because they split, or if they're just following the entire market over the last week.
     
  5. WXYZ

    WXYZ Well-Known Member

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    Yes.....could be....T0rm3nted.

    On another topic.......the 30 year treasury yielding about 1.47%. I cant imagine any PERSON wanting to lock up 30 year money at that yield. TEN year yield is at .68%. Five years ago the ten year was in the neighborhood of 3%. These are DEFLATIONARY rates.......and have been for a long time. In my opinion......not that it has anything to do with stock investing........we have been in a...........MILD....... deflationary depression since 2008. And at times not a bad thing for the economy or those wanting to stimulate the economy. I would.......personally......RATHER be in this situation....trying to push inflation UP. Compared to the situation of trying to push inflation down........which I believe is much more difficult to do. The key of course is to keep it MILD.......as if the FED or the government were competent to do anything about the economy.
     
  6. zukodany

    zukodany Active Member

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    Wouldn’t it be funny if the s&p tsla snub caused it to dip, which caused the whole tech section to dip, which caused the whole market to dip?
     
    WXYZ and T0rm3nted like this.
  7. WXYZ

    WXYZ Well-Known Member

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    Well.....at least the week is over. Kind of a BLAH day....but the Dow and SP500 ended positive. I ended.......RED....by a little bit. the SP500 beat me by .18%.

    SP500 - Last 5 trading days ..........(-1.51%). Year to date +3.41%.

    DOW - Last 5 trading days............(-1.66%). year to date (-3.06%)

    I was thinking today.......this thread will be TWO YEARS OLD on October 2, 2020. That is STARTING to get to be LONG TERM. As time goes by more and more of the stuff on this thread will reflect a long term time period......looking back.
     
    CZ13 likes this.
  8. WXYZ

    WXYZ Well-Known Member

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    HERE is a little article AIMED at any investors OR traders that are part of the ........new........Robinhood crowd. I talked about this some in a post on the prior page......#2045.

    New investors learn stocks go down, too
    Tech stocks plunged over three-day trading span

    https://www.foxbusiness.com/markets/new-investors-learn-stocks-go-down-too

    (BOLD is my opinion OR what I consider important content)

    "A new wave of investors suffered big losses in recent days, getting a harsh lesson on how the stock market works.

    Technology stocks plunged over a three-day trading span that ended Tuesday by their widest margin in nearly six months, erasing thousands of dollars from some individual investors' portfolios.

    Some new investors used options to place big bets that tech stocks would continue to rise unimpeded and were wiped out. Others who had just got into those stocks over the past few months saw their recent gains eliminated. Meanwhile, investors who jumped into the market in March and played it safe saw mere haircuts to their portfolios.

    The painful stretch of trading has been a wake-up call for some of the stock market's newest participants that stocks don't just go up. They also go down, and sometimes, without any clear reason.

    "The market has been an emotional roller coaster," said Temitayo Ola, who is 31 years old and lives in Los Angeles. Mr. Ola got deep into trading stocks back in March.

    "As someone new to the stock market, I didn't realize it could hit periods where you have a pullback like this," he said.

    Wall Street analysts and money managers said the pullback seemed unprompted by anything other than that stocks had run up over a short period. Although the losses pushed the tech-heavy Nasdaq Composite on Tuesday into a correction -- a decline of 10% or more from a recent high -- such an occurrence is considered healthy for the market, especially when many tech stocks remain up by double-digit percentages for the year.

    Investors who bought some of the biggest tech stocks in March are still sitting on healthy gains that have swelled investment portfolios. Including the recent losses, shares of Apple Inc. are up more than 60% over the past six months. The stock of Facebook Inc. is more than 50% higher, while shares of Microsoft Corp. have advanced more than 30%. And the stock of Tesla Inc. has almost tripled during that span.

    Mr. Ola isn't alone. Millions of investors have jumped into stock trading this year, using apps on their smartphones to swap shares like never before. Investors have opened new accounts at record-setting levels this year, using newer trading apps such as the one from Robinhood Markets Inc., as well as diving into more-traditional brokerages including Charles Schwab Corp. and TD Ameritrade Holding Corp.

    Trading volume has been surging as customers buy and sell stocks at a frenzied pace, with some brokerages reporting a pickup in activity that coincided with the stock market's biggest slump in months.

    Trading activity last week within the brokerage of Vanguard Group was higher than usual, said Charles Kurtz, a spokesman for the firm. Merrill Edge, the self-directed brokerage of Bank of America Corp., has seen trading activity almost triple since March compared with last year, with its total number of accounts nearing three million, said Matthew Card, a Bank of America spokesman.

    Mr. Card added that clients had accessed the bank's investing-education content at a rate 25 times higher than in 2019, indicating that many are still learning the ropes.

    The rush of individual investors contributed to the stock market's big rebound from earlier this year. The S&P 500 index has jumped almost 50% from its March trough. But the rally gave some of the market's newest entrants the impression that stocks largely move in just one direction -- a mistake that proved costly.

    "Prior to last week, I was up a lot," said Mr. Ola, a video producer who said he had doubled his money since getting into the market in March.

    Mr. Ola said he lost $10,000 alone on call options -- basically wagers that profit if stock prices go up -- for DocuSign Inc. and Rocket Cos. He has another contract remaining on Apple that will likely be a loss as well.

    Options trading has been especially robust as investors try to magnify their gains by placing bets on whether stock prices will rise or fall. Daily average options trading activity hit a record 28 million contracts last month, up sharply from the year before.

    "People jump into options trading to make more money, but I took a major L," Mr. Ola said, referring to his losses.

    At the same time, most of his stock portfolio, which consists of tech stocks including Apple, Tesla and Microsoft, fell sharply. Each of those stocks on Tuesday gave up a chunk of their recent gains -- none more so than Tesla, which suffered its steepest decline on record.

    "If you've only experienced this rip-roaring market rise since the lows of March, you come to think of investing as very easy, and it's not," said Steve Sosnick, chief strategist at Interactive Brokers.

    Megacap tech names had proven popular with investors trading both stocks and options, Mr. Sosnick said.

    "I think there had to be a lot of people who were just a little taken aback by how tenuous a lot of your investment gains can be," he said.

    Mr. Sosnick said demand for call options for Apple and Tesla had recently outweighed bearish put options, indicating that investors were more worried about missing out on gains than they were about hedging against losses.

    Some investors said they weren't fazed by the pullback and saw it as an opportunity to buy stocks they missed out on earlier in the year. Tyler Snyder, a 21-year-old HVAC service technician in Kitchener, Ontario, took some of his losses in stride and bought shares of International Business Machines Corp. last Friday after the company's stock slid nearly 5% over two trading days.

    "I feel like a kid in a candy store," Mr. Snyder said. "The market is what you make of it. A lot of scared money is being shaken out right now."

    Still, the timing couldn't have been worse for some investors.

    Farhoud Moaddel, who is 50 years old and lives in London, watched Tesla shares rocket higher throughout the summer before getting in on the action. He said his fiancée had made good money flipping shares. Stock in the company seemed unstoppable as it more than quadrupled in value since December.

    "I just went in, and the music stopped," Mr. Moaddel said. Their Tesla shares have shed as much as $20,000 in value since they bought them, he said.

    Mr. Moaddel, who is self-employed, sees parallels with another unfortunate investment decision he made: He sold 400 shares of Amazon.com Inc. at a loss during the 2008 financial crisis. Mr. Moaddel is now of two minds about whether to hold on to the Tesla shares or cut his losses.

    "I don't know if it's going to slide further," he said. "I'll have to see what happens, but it's going to be very painful."

    As well as investing in Tesla, Mr. Moaddel bought shares in a few other tech companies at about the same time. Those shares have also fallen -- and the timing is far from ideal for the couple.

    "We were planning to get married, and we could do with every pound," he said."

    MY COMMENT

    DUH............I know that is a HARSH word. BUT.......come on man........wake up guys. The reality is that many of these young guys are not investors......they are NOT even traders.......they are uneducated SPECULATORS. It is a recipe for disaster to be trading options with nearly TOTAL emphasis on TECH and ZERO knowledge of even the most basic elements of stock and fund investing.

    I TOTALLY believe that the past week and the losses we had in the averages was due......for the most part.......to these new seekers of EASY WEALTH bailing out when reality struck. MOST.....probably.....did not have any choice....they simply lost everything and were driven out of the markets. NO ONE should be investing a penny in stocks if they.......have no clue that stocks can DROP. MOST of these people should NOT be trading options. THE chickens have started to come home to roost......and......the BAD NEWS I have for anyone that the above article applies to is.......YOU are just at the beginning of the very negative lessons that you are going to learn.

    INVESTING........or even trading.......is NOT a process of going into some chat room and following a bunch of other young guys egging each other on to make speculative bets on something you have ZERO understanding about.

    EVEN though I am wasting my time to say this.......EDUCATION is the key and many of the recent stock market converts have NONE when it comes to even the basics of investing. The second key is to NEVER invest more than you can afford to lose. The third key is to understand the risk you are talking in whatever you are doing..........AS WELL AS.......your own risk tolerance financially and psychologically. The forth key is to invest for the long term that is the TRUE path to wealth as an investor. The fifth key is to invest using REAL money..........NOT options........and especially NOT any sort of leverage. The sixth key is to know and understand that CORRECTIONS and even BEAR MARKETS are reality and part of the NORMAL investing process.......if you can barley survive a little one week blip like last week......YOU are done for anyway.....you just dont know it yet.

    YES.......I remain fully invested for the LONG TERM as usual.......BECAUSE........I follow ALL the keys points above and many more.

    ETC, etc, etc, etc.
     
    #2068 WXYZ, Sep 12, 2020
    Last edited: Sep 12, 2020
  9. WXYZ

    WXYZ Well-Known Member

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    ZUKODANY

    I do think you are correct.....to a certain extent about Tesla and the SP500. I do think that they contributed to the sell off last week by giving Tesla the finger. AND....in doing so hurt the entire market including their own index......short term. ONE of the most chicken moves ever. AND.....a move that DIMINISHES the value and reputation and status of their PRODUCT going forward. YES.......I believe that the indexes are PRODUCTS.

    BUT......in the end do I care......no. I own the company and the business that is called Tesla....nothing more nothing less.
     
  10. WXYZ

    WXYZ Well-Known Member

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    EVERYONE........that is a regular follower on here knows that I have set up my retirement income based on Social Security and additional funds that I get every month from 6 income annuities..........for my life and the life of my wife.......as long as either of us is alive. As a SELF EMPLOYED business owner in my.......former life......I had no government or other pension outside of my personal assets.

    Do you really need $8 million saved up for retirement?

    https://www.marketwatch.com/story/do-you-really-need-8-million-saved-up-for-retirement-2020-09-11

    (BOLD is my opinion OR what I consider important content)

    "Have I not been pessimistic enough?

    In a recent column, you may recall, I argued that retirees are caught on a treadmill fueled by low interest rates. On the one hand those low rates are crucial to keeping the stock bull market going, but on the other hand those rates mean that your portfolio dollars don’t go as far as they did previously. In short, retirees are having to run faster just to stay even.

    Gloomy as this was, it was nothing compared with the picture painted by the popular Financial Samurai blog. As fellow columnist Shawn Langlois summarized, the author of this blog in effect argued that you would need an $8 million portfolio in order to have retirement income of $40,000 a year. Ouch.

    Fortunately, the situation is not nearly as bleak as this.

    One way to show this is to focus on how a big your portfolio needs to be in order to purchase a guaranteed lifetime income in excess of $40,000 annually. The answer, even with today’s low interest rates, is less than $1 million. While that is still an imposing amount of money, it’s a lot less than $8 million.

    Consider the accompanying chart, which reports the annuity payout you can purchase today with $1 million. The data are courtesy of an online comparison tool at ImmediateAnnuities.com. I assumed a single male, either aged 65 purchasing an immediate annuity or aged 60 purchasing a deferred annuity to begin payouts in five years’ time.

    [​IMG]
    The chart reports the yearly payment level assuming either no inflation adjustment or what it would be in the first year if, in each subsequent year, it was 3% higher. Notice that in no event is the annuity’s annual payout less than $40,000.

    Why did the Financial Samurai conclude that you need so much money to retire on $40,000 a year? The author derived it from the annual income you would earn if you took your entire retirement portfolio and purchased a 10-year Treasury. That admittedly is a low number.

    That is too pessimistic, however, for several reasons. First, in retirement you are able to draw down your portfolio’s principal in addition to living on its income. This is why the tax code treats a big chunk of an annuity payment as tax-free, since it represents a return of principal. So take this into account when comparing annuities to other possible retirement finance options; on an after-tax basis, the annuity is likely to look even more favorable.

    Another reason the Financial Samurai analysis is too pessimistic: Annuity rates are more correlated with the corporate bond yield than the Treasury yield, as I showed in the chart that accompanied my recent column. Though the corporate bond yield has been coming down in recent years, it is still larger than the Treasury yield.

    Furthermore, most researchers have found, you most likely will have a higher retirement standard of living if you do not annuitize with 100% of your retirement portfolio. Some financial planners recommend that you do so with perhaps one-third of it. The guaranteed lifetime income it would provide will enable you to take on more risk than otherwise with the balance of your portfolio, which should in turn improve your retirement standard of living relative to what it would be if you annuitized your entire net worth.

    So the analysis presented here is the minimum. To the extent you are able to do better, of course, then you would need less than $1,000,000 to fund a retirement income of $40,000 annually.

    None of this discussion suggests it is easy to finance a comfortable retirement. But, by the same token, it’s important also not to exaggerate how hard it will be.

    Inflation
    I also want to focus on the impact of inflation on retirement income. Which do you think is a better deal to purchase with $1 million? An immediate annuity that provides no cost-of-living adjustment (which in the accompanying chart translates into an annual payout of $59,124) or one whose payout grows 3% a year (which, per the chart, translates into an annual payout in the first year of $42,288)?

    By way of an answer consider that, in the 13th year, the annuity with the 3% COLA will pay out $60,293, more than the $59,124 of the annuity with no annual increase. And, cumulatively over the next 23 years, the total dollars paid out by the 3% COLA annuity will have exceeded the annuity with no adjustment.

    So your choice between these two annuities will depend in part on your life expectancy."

    MY COMMENT

    The company mentioned above......Immediate Annuities........is the go-to company mentioned in most if not all financial articles about income annuities. NOTE: Income annuities are VERY DIFFERENT than the BAD annuities that are SOLD by many financial advisors. In fact I used this company to buy my 6 income annuities. I did defer payment for five years. I also put a 10 year payment guarantee on the annuities so at a MINIMUM 10 years of payments would be made either to us or our heirs. this basically guaranteed that payments would equal out premium. This feature cost a tiny amount of income on each annuity each month.....perhaps $20.

    This is one good way to turn a lifetime of retirement savings into a guarantied pension.
     
  11. WXYZ

    WXYZ Well-Known Member

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    THIS looks like an interesting story:

    SoftBank nears $40 billion deal to sell Arm Holdings to Nvidia

    https://www.foxbusiness.com/technology/softbank-deal-sell-arm-holdings-nvidia

    (BOLD is my opinion OR what I consider important content)

    "SoftBank Group Corp. is nearing a deal to sell British chip designer Arm Holdings to Nvidia Corp. for more than $40 billion, according to people familiar with the matter, the latest in a series of big asset sales by the Japanese technology conglomerate.

    The cash-and-stock deal being discussed would value Arm in the low $40 billions, the people said. The terms under discussion would mark a big win for SoftBank, which bought Arm four years ago for $32 billion and had struggled to jump-start growth in the business.

    Arm and Nvidia have been in exclusive talks for several weeks and a deal could be sealed early next week, the people said -- assuming it isn't derailed at the last minute.

    Arm designs microprocessors that power most of the world's smartphones. By joining forces with Nvidia, the combined company would be a powerhouse in the chip industry.

    Nvidia is a fast-growing industry player whose chips are used to run the intense calculations for graphics -- and play a key role in videogaming, cloud-computing and other activities for which the coronavirus pandemic has stoked demand. That has sent its shares up more than 100% this year, making it the best-performing stock in the S&P 500 index.

    Should a deal come together, it would be one of the largest transactions so far this year and potentially the largest semiconductor deal ever. Though business disruptions stemming from the pandemic have dented global deal volume, consolidation has kept up pace in the semiconductor industry as chip makers seek scale and expand their product portfolios to support the increasing number of everyday items that are connected to the internet. Such linkage is commonly referred to as the Internet of Things. Another of the year's biggest deals was the $22 billion purchase of Maxim Integrated Products Inc. by fellow chip maker Analog Devices Inc.

    A sale to Nvidia could prompt scrutiny from antitrust regulators and potentially pushback from Arm's customers, which include major chip makers and electronics manufacturers such as Intel Corp., Samsung Electronics Co. and Apple Inc.

    The Wall Street Journal reported in July that SoftBank was exploring options for Arm including a full or partial sale or an IPO. Arm had said it planned to transfer two Internet of Things services units into new entities that would be owned and operated by SoftBank as part of a move to focus on its core semiconductor-Ip business. It later reversed course on that move, saying it would instead keep the operations in-house.

    At SoftBank, Chief Executive Masayoshi Son has been working with a small team to negotiate the Arm deal. (REUTERS/Kim Kyung-Hoon/File Photo)

    SoftBank, for its part, had been under pressure to shore up its flagging stock price and promised some $40 billion in asset disposals. Most or all of that is already under way or completed and its shares are up more than 20% this year. Among the sales: big chunks of its holdings in China's Alibaba Group Holding Ltd. and T-Mobile US Inc. following the wireless provider's merger with Sprint Corp.

    SoftBank has also purchased options tied to around $50 billion worth of individual tech stocks this year. The sheer size of the bet has had an outsize effect on the overall stock market, driving prices higher, the Journal has reported.

    At SoftBank, Chief Executive Masayoshi Son has been working with a small team to negotiate the Arm deal including the chief executive of the chip company, Simon Segars, Chief Financial Officer Yoshimitsu Goto, as well as Rajeev Misra, CEO of the firm's giant Vision Fund, and Akshay Naheta, another executive at the fund.

    MY COMMENT

    Looks like a nice move for NVDA.......but.........these sorts of deal often dont pan out as thought............. if the sale actually happens.
     
  12. WXYZ

    WXYZ Well-Known Member

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    HERE......is confirmation. This should drive the Robinhood boys into a FRENZY tomorrow:

    Nvidia to buy Arm Holdings from SoftBank for $40 billion

    https://www.cnbc.com/2020/09/14/nvidia-to-buy-arm-holdings-from-softbank-for-40-billion.html

    (BOLD is my opinion OR what I consider important content)

    "Chipmaker Nvidia has agreed to buy Arm Holdings, a designer of chips for mobile phones, from SoftBank in a deal worth $40 billion, the companies announced Sunday. The deal will include $21.5 billion in Nvidia stock and $12 billion in cash, including $2 billion payable at signing.

    Softbank acquired Arm in 2016 for $31.4 billion in 2016 in one of its largest acquisitions ever. Arm is best known as the designer of an architecture used in chips in most mobile phones, including the Qualcomm chips used in most Android phones, as well as Apple’s iPhone. Apple is also planning to shift its Mac computers from Intel chips to an Arm-based design.

    Nvidia, whose chips are widely used to support graphics and artificial intelligence applications, including for self-driving vehicles, pledged that it would “continue Arm’s open-licensing model and customer neutrality.”

    SoftBank bought Arm as an investment in the so-called Internet of Things -- the idea that wireless connectivity among everyday items such as refrigerators, cars and other devices would lead to useful new scenarios.

    At the time, Softbank Chairman Masayoshi Son told reporters, “This is a company I always admired for the last 10 years...This is the company I wanted to make part of SofBbank. I am so happy.”

    However, SoftBank’s finances have deteriorated this year as the company has lost money on investments in companies like WeWork and Uber. More recently, the company’s shares lost value as it was reported that it had taken some large stakes in tech giants, which have suffered a loss in stock market value in early September. It’s unclear how much money SoftBank will actually make on the sale, since it has likely invested a lot in Arm since the acquisition.

    The company is also looking for cash to help start-ups it invested in through its Vision Fund, many of which have struggled during the coronavirus pandemic and subsequent lockdowns. Earlier this summer it announced it would sell up to $21 billion of its stake in T-Mobile."

    MY COMMENT

    COULD........emphasis on "could".......be a nice deal for Nvidia going forward. BUT........I have seen many, many deals like this one over 45+ years of investing and I would say more often than not it turns out to be........nothing of any consequence. It will take MANY years to see if this deal is able to get past ALL the various factors that often turn this sort of purchase into simply PR...........with NO payoff.
     
    #2072 WXYZ, Sep 13, 2020
    Last edited: Sep 13, 2020
  13. WXYZ

    WXYZ Well-Known Member

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    ON.....the topic of the Robinhood boys. I hate to tell them but Robinhood is SELLING them and their data out to the BIG firms and trading houses. This has been known for a good length of time........but it is worth repeating:

    Robinhood Is Making Millions Selling Out Their Millennial Customers To High-Frequency Traders

    https://seekingalpha.com/article/42...illennial-customers-to-high-frequency-traders

    (BOLD is my opinion OR what I consider important content)

    "Summary
    Robinhood is marketed as a commission-free stock trading product but makes a surprising percentage of their revenue directly from high-frequency trading firms.

    It appears from recent SEC filings that high-frequency trading firms are paying Robinhood over 10 times as much as they pay to other discount brokerages for the same volume.

    Robinhood needs to be more transparent about their business model.

    In English folklore, Robin Hood is an outlaw who takes from the rich and gives to the poor. Robinhood was founded to disrupt the brokerage industry by offering commission-free trading. They may not be all that they represent in their marketing, however. The question you should be asking whenever someone in the financial industry offers you something for free is "What's the catch?" And yes, there is typically a catch.

    After digging through their SEC filings, it seems that today's Robinhood takes from the millennial and gives to the high-frequency trader.

    Not only does Robinhood accept payment for order flow, but on a back-of-the-envelope calculation, they appear to be selling their customers' orders for over ten times as much as other brokers who engage in the practice. It's a conflict of interest and is bad for you as a customer.

    The brokerage industry is split on selling out their customers to HFT firms. Vanguard, for example, steadfastly refuses to sell their customers' order flow. Interactive Brokers (IBKR), which is the preferred broker for sophisticated retail traders, doesn't sell order flow and allows customers to route orders to any exchange they choose.

    Robinhood not only engages in selling customer orders but seems to be making far more than their competitors from it. Among brokers that receive payment for order flow, it's typically a small percentage of their revenue but a big chunk of change nonetheless. Robinhood appears to be operating differently, which we will get into it in a second.

    All brokerage firms that sell order flow are required by the SEC to disclose who they sell order flow to and how much they pay. The people Robinhood sells your orders to are certainly not saints. Citadel was fined 22 million dollars by the SEC for violations of securities laws in 2017. Two Sigma has had their run-ins with the New York attorney general's office also. Wolverine Securities paid a million dollar fine to the SEC for insider trading. It's easy to miss, but there is a material difference in the disclosures between what Robinhood and other discount brokers are showing that suggests that something is going on behind the scenes that we don't understand at Robinhood.

    From Robinhood's latest SEC rule 206 disclosure:

    [​IMG]

    [​IMG]

    Compare this with E*TRADE (ETFC). They have client assets of $392.8 billion and make roughly $47 million per quarter selling order flow to HFT. From the latest E*TRADE rule 606 disclosure.

    [​IMG]

    TD Ameritrade (AMTD) has client assets of roughly $1.2 trillion and made $119 million last quarter from order flow. From TD Ameritrade's rule 606 disclosure.

    [​IMG]

    Look closely here - if you don't, you'll miss it.

    TD Ameritrade and E*TRADE both report their payments for order flow as roughly a tenth of a penny per share. Now, look at Robinhood's SEC filing. They report their figure as "per dollar of executed trade value." This means the number you see in their filing looks smaller if you don't have the filings from their competitors in front of you, but it's actually much higher.

    Let's do some quick math. Assume the average stock traded has a share price of $50. It takes 20,000 shares traded at $50 for $1,000,000 in volume, for which E*TRADE makes $22 per $1,000,000 traded, which sounds like a small number until you realize they cleared $47,000,000 last quarter from this. But off an identical $1,000,000 in volume, Robinhood gets paid $260 from the same HFT firms. If Robinhood did as much trade volume as E*TRADE, they would theoretically be making close to $500 million per quarter in payments from HFT firms.

    Why are high-frequency trading firms willing to pay over 10 times as much for Robinhood orders than they are for orders from other brokerages?

    Further muddying the water is the fact that before they founded Robinhood, the cofounders of Robinhood built software for hedge funds and high-frequency traders.

    Why wouldn't they report how much they are getting paid per share like E*TRADE, TD Ameritrade, or Charles Schwab (SCHW) and instead report per dollar of trade value where the number can look smaller when it's actually ten times as much?

    I'm not a conspiracy theorist. I'm not even a pessimistic guy. But Robinhood is not being transparent about how they make their money. Every other discount broker reports their payments from HFT "per share", but Robinhood reports "per dollar", and when you do the math, they appear to be receiving far more from HFT firms than other brokerages. This raises questions about the quality of execution that Robinhood provides if their true customers are HFT firms.

    Robinhood isn't the worst thing to happen to online trading, but they market their service as a free/no-commission product, which has the effect of pushing trade volume through the roof. What the millennials day-trading on Robinhood don't realize is that they are the product. Robinhood is well on their way to making hundreds of millions of dollars in cash income by selling their customers' orders to the HFT meat grinder. High-frequency traders are not charities. The only reason high-frequency traders would pay Robinhood tens to hundreds of millions of dollars is that they can exploit the retail customers for far more than they pay Robinhood. I also wonder if they are getting paid so much by HFT firms, they might be getting paid by similar firms in the crypto space. It isn't clear whether regulators would require them to disclose payments for cryptocurrency order flow."

    MY COMMENT

    I have seen much information about this in various sources recently AND over the past year or two........so.......it is not a secret. There is NO free lunch.
     
    B Russ likes this.
  14. WXYZ

    WXYZ Well-Known Member

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  15. zukodany

    zukodany Active Member

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    Great deal for Nvidia and that comes on the heels of buying Melannox just earlier this year. They’re on a shopping spree!
    But like you said this prolly won’t reflect much on the stock price. Prolly knock it down by a few points temporarily in fact
     
  16. WXYZ

    WXYZ Well-Known Member

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    Looks like we got the markets off to a good start for the week. Some NICE tech news items helped a lot. As USUAL on a day like today all accounts were NICELY GREEN. AND a good beat of the SP500 by .46%.
     
  17. B Russ

    B Russ Active Member

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    Again, thanks for your work wxyz.

    to be clear on the order flow, i want to make sure i understand.
    Lets say there are 10k sell orders ranging limits from $35 to $37 per order. The trade flow gives HTF priority on the cheaper limit buys, and once those say.....$35 orders are filled, they fill the next available lowest orders? (And i am assuming the HTF supercomputers have vision to the buy/sell pressure, so they can play both sides for fractions of pennies?) But the HFT take the best price and leave the leftover for retail....at the higher prices?

    Did i grasp that right? Thats the way i have always understood HFT and tradeflow.
     
  18. TomB16

    TomB16 Well-Known Member

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    I'm the only person here who has mentioned I only buy and sell with limit orders.

    It's easy to do,if you area patient, long term, trader.
     
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  19. Jwalker

    Jwalker New Member

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    I use limit orders but mostly because I am attempting to get the same price in my wife and I’s IRA accounts. If it wasn’t for that I think I would just do market orders.
     
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  20. B Russ

    B Russ Active Member

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    Ok. Even at market, i would assumue the same applies? HFT getting first market trades, and retail getting the less attractive price in the gap?
     

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