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Not long ago, I posted about owning shares of ETrade (ETFC) which quickly became one of the most commented posts as Citigroup’s analyst came out on Sunday and said the company might go bankrupt.
I received many emails and comments from loyal readers about the news and questions of the whole thing so I want to use this post to address all the questions for everyone’s benefit.
Question: Do you still own shares of ETrade and what was your cost basis?
Answer: Yes I still own stocks in ETrade and yes it was hammered VERY badly on Monday. However, I have not sold any shares either. From where it was (a high of $28 per share), it’s been going down for weeks till today’s closing price of $3.59. Although I didn’t buy at $28 per share, my average price per share was still $11.96 so today’s price represent a good 70% below my cost.
Question: Are you buying anymore shares of ETrade?
Answer: No. I have put in as much money into ETrade as I want to in any one stock and it might get worse in the short term before it gets better. I do not feel that it can do anything significant until it gets to the quarterly report (assuming they can last that long without additional negative news). I am a true believer of the following quote.
The market can stay irrational longer than you can stay solvent - John Maynard Keynes
So even though I feel that the selling is totally irrational and that ETrade’s balance deserves a better share price, I have to admit that the price would continue to drift lower if no one wants to buy any shares. If ETrade clients really start to pull money out of the institution because of fear, then bankruptcy is possible.
Question: What have you learned from today’s big loss?
Answer: I have lost a lot of money on a single day one other time and I remember feeling devastated. Today, I feel okay even though today’s loss breaks a new record! I think one of the reasons I don’t have that sickening feeling I had before is because I was prepared for the decline.
Going into the investment, I know it might turn out very bad. I fully prepared myself for this before it happened and the lack of surprise helped my calmness in the whole situation.
I also read many articles (including this very helpful one from reader John) on brokerage asset protection just in case ETrade declares bankruptcy. In the coming days, I will be posting about what I learned.
I also feel stronger about the importance of stop-loss. Thinking back, I’ve only lost money on a few stocks but they have all been big losses, which could easily been prevented if I stopped my lost at 7% or 8% like many other people do.
Question: Many people who read this article probably own the stock or uses ETrade’s service. What is your advice to them?
I’m not a stock broker and do not plan to give stock advice. I mentioned earlier that I’m holding on to the stock but I am also not buying more. Whether it will go down or up in the short term is unpredictable. I think that if they can survive the fear and keep clients from moving money away, the stock price will be back up in the coming months/years which will be a very good return from this price. If not, then we are in for an exciting ride to the finish!
If you too plan to hold onto your stock (or maybe even buy more), then I wish you luck!
Related Posts
- A Quick Update on ETrade
- Oh My God I Own Shares of ETrade (ETFC)
- Why ETrade is Still My Brokerage
- Today is ETrade’s Customer Appreciation Day
- Error in my Etrade account!
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That sure is a wild ride. You have a very good attitude about it though.
I’m not very current on the market these days, but I would think a takeover would be much more likely than bankruptcy. So unless it has been horrendously mismanaged (more than we even know now), it’s hard to believe a takeover price wouldn’t be much higher than the current price.
That being said, the fact that bankruptcy is even being discussed would be enough to scare me away. Good luck to you!
FinanceAndFat: I think ETrade would try their best to not get taken over at this time since their core business is pretty strong and it’s the worst time to get bought out since they probably think the company is worth $30 a share instead of $4.
Everyone is definitely scared when it comes to losing their money (myself included) but I just decided to wait it out. Today’s stock price bouncing back a little bit helps the conscious a little bit though even though it’s nothing compared to the lose that I’ve already incurred!
I feel the same way about ETrade. I’ve actually owned it for a while, so my cost basis is higher than yours, but I decided to stick with it for the time being. I still think their core business is attractive, but was always fearful of their mortgage business. I had been watching their home-loan business for a while, and it worried me as the credit crisis got worse and worse. Just didn’t think it would be as bad as it is now.
Terrence: I don’t think the mortgage side is as bad as the stock price is reflecting it. Even if the whole mortgage business is gone, I think the stock is worth more than it is now.
As you know, I’m with you on the stock so hopefully the smoke clears sooner rather than later.
Regardless of your trading strategy, you might enjoy this video with the famous chimp from the Super Bowl Ads. http://youtube.com/watch?v=6uSL1rilsWg
Tai: Maybe Zecco should contact me for advertising!
I was wondering about you and your shares when I saw that Etrade spiked 25% on takeover speculations. What are your feelings on that? What will it means for your holding?
Mark: Thanks for asking
Honestly, when your stock go from $15 to $3.50, it doesn’t feel much different whether its $5 or $4!
I’m holding it and riding the ups and downs. I suspect it’s going to be pretty volatile for a while. Even if it gets sold, it’s probably going to be less than the price I bought it at I believe.
hey, ….ning, i’m a firm believer in stop-loss and your percent sounds high. i have a risk capital principle which is set to 1 to 2% max. and as it (which ever stock / option ) breaks BE (break even) the slide goes up, never never take a loss (as hard as that may seem, and yes i have taken a loss , learning). Dr. A. Elder’s book, ‘come into my trading room’ is my bible, great read and guide. ningpo
ningpo: It is definitely WAY below 1-2% of my portfolio in terms of loss. I should start putting this to use more often!!!!
Check out this site: http://www.supportetrade.com
Posted it on your other blog article, too. I found it interesting and started googling for more info on what happened to E*Trade back in the fall. WOW! What a story! This story needs to be told.