Big Money, Smart Money
Patrick is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Despite continued outflows in equity funds, the market has been moving up since October, and rocking in the New Year! If the little guys are getting out, and the market's moving up, then the big guys must be moving in! Assuming that they got big by being smart, we could try to ride their coat tails by going all in behind them until the headlines start talking about equity fund inflows, or we could try to be just a little bit smarter.
The financial sector has finally shown some signs of life. If you believe in Jim Cramer's chart relating the Fed rate to sector rotation (see it here) then they still have several rate hikes, probably a couple of years, to continue the upward trend (on the other hand, if you followed Cramer's advice on when to buy the financials, you'd have been way too early this time around -- no system is perfect). Still, a promise of cheap money in a growing economy should be good for the money men.
So how do we put these observations together? We expect the sector to do well, but we know that whoever's handling the big boys has probably been doing more business lately. Let's compare a few brokers, and think about who their customers are.
Charles Schwab (NYSE: SCHW) and E*Trade (NASDAQ: ETFC) are certainly well known to retail customers. Interactive Brokers (NASDAQ: IBKR) has a retail component, but definitely leans toward the more sophisticated. SEI Investments Company (NASDAQ: SEIC) specializes in institutional and high value individual customers.
Playing my usual "good, bad, ugly" game, balancing cheapness against profitability, I would have to rate E*Trade as good and Interactive Brokers as ugly.
The bad guys are interesting this time, though.
SEI has had the biggest runup in price, but is the most expensive, at least as measured by book value. It's not so bad by other measures, and might keep the runup going, if it is indeed handling some of the big money that's driving this market.
Schwab gives you 3/4 of SEIC's bang for only 2/3 the price, a value all its own.
An interesting exercise, with 3 of 4 stocks worth considering.
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