Some of you know that I’m a very happy ETrade customer and some know that I have bought ETrade’s stock (ETFC) during the last month. Here’s my buying history and the extended hour price after it reported a net loss of $56 million.
09/06/2007 @ $15.1675
09/25/2007 @ $12.1999
10/12/2007 @ $13.30
After hour price on 10/17: $11.75
After adjusting for different quantities bought at different times, I’m down 12% as of this point. Who knows what tomorrow will bring for the stock price but no matter how you look at it, this has been a bad investment for me so far. I can do three things at this point: buy more shares, sell my shares, or do nothing.
1) Buy more ETFC – The stock is beaten down so bad that it cannot go much further because most people already expected the company to report a pretty bad quarter. The fact that it is only down 5.85% in after hours trading after such a bad quarter confirms that most people who will sell the stock has already sold (the stock was in the high 20s a few months ago). The risk is of course that the mortgage unit keeps getting worst and worst to a point that the company is in trouble and/or their retail clients start moving assets away from ETrade.
2) Sell ETFC – I am already down 12% and being stubborn usually equals more losses. What you don’t know never hurt the most but what you know that turns out to be wrong is usually the most devastating.
3) Do Nothing – and hope that the stock price goes back up. This option is really for the undecided, not a good idea.
Before I tell you what I plan to do, maybe I should tell you why I bought ETrade in the first place. I see a great company that’s been so badly beaten down because of the mortgage unit. I see so many good things with one bad thing. In time, things will turn around because I believe the valuation of this company is very good. If the stock price keeps going down, it will be very attractive to other competitors to trying to gobble it up, putting a floor in the stock price.
Has this picture changed since the earnings call? No, since I was expecting the bad quarter. I see the same great company that just got cheaper. It might take a while for the stock price to come back up, but I know it will.
So what have I decided? Well, can’t you figure that out already? 
PS: Buying ETrade or any other company that everyone thinks is in trouble is a dangerous thing to do, so only buy them with money you can lose. There is a chance that I’m just dead wrong. If I lose it all, I may scream, I will probably swear and I could even cry. One thing I know for sure though, I know I can afford it.
- E*Trade Financial – Official Site
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{ 110 comments… read them below or add one }
If I am understanding you correctly, you are investing in Etrade for the long term right?
If that is the case, then no worries, share prices fluctuate every day, Money Ning. Even every hour. That’s why we pay the traders on the floor to pull their hair out.
It sounds like you have done your due diligence on this stock. I will have to check to see if I own any of this through my funds. It would be interesting to watch this stock grow over the years.
Mark: Yes this is for the long term. I knew before buying that I shouldn’t expect there to be much short term up side.
I think this is a good company though so I think it will be a good investment over the long term. I bought more today
That is another great way to lower the average cost of shares, buying more when the share price is lower.
Do you have a formula or something you use to help figure out how many shares you want to purchase if the price fall?
Mark: No I really don’t have an exact method for this. Most of the time, I would buy half of the shares I want to own, then if it dips lower, I will buy more. If it goes up, I just make less money which is okay with me
If it goes even lower after I’m done with buying, I treat it as if it’s a new investment so I will re-assess how much I want to buy then.
You can never go wrong with taking a risk if you can afford it
Wow, what a risky buy! Did you let you fiance know about your investment plans? I am just wondering how a couple to invest their money together.
thewild1: Thanks for the support!
Emily: Hmm you sure look out for my fiancee quite a bit
Every couple takes care of their money in different ways but I wouldn’t put my fiancee’s money at too much risk so those are all in safe investments.
Averaging is a good basic concept. But, I can’t understand why more investors don’t apply it to something safe, like a government no-interest bond fund. With profits restricted to cap gains only, the potential is usually double-digit. Then with a known direction–up, toward eventual maturity–you can play all the zigs and zags on the way up, by going in and out of an accompanying money market fund. (I’ve done this by collecting 11.5% annually on cap gains, and another 20% by playing the zigs and zags, over the past 5 years.)
Jack: Hmm. Care to explain this in more detail for us (with an example fund name and how you did it)?
We are always willing to learn new things!
MoneyNing, the stock ace! Keep up the good work, buddy.
the only stocks that go down that I like are the ones that pay a dividend.
I reinvest all the dividends, so if they go down, i get more of a return.
however, I’d never buy E-trade. when the CEO quit, he gave himself a $100 million parachute. not exactly the sort of thing that inspires confidence.
All of my stocks currently pay a dividend. I’ve been thinking of buying BRK-B, but I’m on the fence since they don’t pay any dividends.
Modern Worker: I’m by no means the stock ace and so far it doesn’t look like I made a good choice by buying
Oh well, we will see how this recession fear goes.
living off dividends: Berkshire is great but remember that value stocks have gone up a lot in the last few years and growth stocks will probably outperform for a while.
Good luck!
E-Trade is one of the best long-term investments I’ve seen in a long time. As we all know, the stock has been beaten down by the Mortgage Mess and investor fear. The truth is they took a “Provisission” write-off of bad loans. If those loans do not go bad, and there’s a chance they may not, they could take a Write-Up. Their Coar business of Trading Commissions is achieving 30% plus growth. If it was not for the Mortgage problem, this would be a $30 stock. Over the next three years, it probably will be up to that level or higher. My two-cents: Buy, hold, turn off your computer and be patient. You’ll tripple your money in three years or less. (Just don’t look at it for awhile)
Patience: Thanks! It’s always great to hear someone who agrees with you when you are trying to go against the tide
I want to know if your thesis has changed any since 10/22 as the market cap of ETFC shrank dramatically. I have started buying ETFC last week and my average price is $10.49. I might buy some more if the market allows sub 10 dollar price. However, I must confess I have some trouble figuring out the intrinsic value of this stock – especially because of the mortgage portfolio. In any event, I cannot pass on this golden opportunity to buy at book value.
Glodoc: If you are talking about sub 10 dollar, we are already there. The price is $9.47 at closing.
Right now, everyone is super afraid of financial stocks. Just look at the big giants like citigroup and bank of america falling 20% – 40%. Basically, everyone is saying that they cannot put a value on the mortgage portfolio anymore because of the defaults. Buying ETFC now is basically a bet that
a) there will be no further unexpected write downs
b) the unexpected write downs are already reflected in the price.
I believe ETFC will come out ahead of local banks in the mortgage departments because people who get ETrade loans have a higher income on average than people who get loans from banks. It was bad at the beginning for ETFC because speculators of the real estate market got burned as they are usually the people who take the loans that reset after one year.
However, I am buying ETFC with money I own since I have no idea how long it will take this mess will drag out. The last thing I want to happen to me is if I get a margin call and I sell all my ETrade shares to cover only to see the price rise and rise 3 months after.
MoneyNing,
Thanks for your reply. I am aware of the $9.47 closing price. My last buy was at $9.55. I guess, I was hoping it would not open higher than $10 tomorrow, so I could buy more! Of course, I will be thrilled if ETFC does open higher.
I have invested about 7% of my portfolio (no margin, of course) in this stock.
ETFC to me sounds like American Express experience for Warren Buffett (as you probably know, he put 40% his assetts in American Express after their (Amex’s) disastrous investment in one Salad oil business that was bogus and American Express lost about half of their stock value).
Gldoc: It’s great that you got in later than me (hence a better avg price). I have been buying since $15 and my avg price is around $11 – $12 (Actually I went to check mid-way in my comment and my cost basis is $11.96) so I’ve been buying
Right now for me it’s about 10% and I plan to keep buying as/if it goes down.
I sure hope that you are right with your association with American Express
It would be the day for you and I if Warren Buffett comes out and says he owns stakes in ETFC 
I bet it will double within one week if that happens even though I doubt he will buy something so small.
As it goes down though, I’m not sure they can hang on much longer. I know they didn’t entertain acquisition talks when it was $15 but it is now $9.50. What if it goes down to $7 and people just buy shares in the open market and they close with $12? That wouldn’t be the investment I’m looking for since I think it should go back up to $20ish.
So far I am losing 18% on this stock (not counting the afterhours drop Friday). Very disheartening. I am going to buy couple of thousand more here. We need some relief from this relentless selling.
Gldoc: It sure is!! I felt okay until the SEC and more writedown announcements since all the down push before that was from the industry and not ETrade specific. Now there is a real reason for the decline.
Let’s see what next week will bring!
Uh oh, looks like there’s danger in Etrade
3:20pm… do you know where your etfc shares are going? Down the crapper.
Maybe cutting your losses after 5% declines instead of averaging down would have been smarter. Then it would only take a 10% gain to recover instead of the 300% or so you will have to come up with now to get back to breakeven.
talez: There definitely is!!!
Sabbas: Yup it definitely would have been but hindsight is 20/20.
I’m not sure why the hostility in your comments but I’m glad you are helping watch out for the etrade stock price.
ouch! since i dont have stock certificates, anything over 100,000 is not covered at etrade? I have almost everything in stocks there.
kate: Actually it’s the bank side that is insured up to $100,000 just like any other bank.
The stock side is covered. I wonder what will happen if you bought those ETrade index funds though.
If you are someone who screams, cries and otherwise gets all emotional when a stock drops, or if you get excited and delighted when a stock rises, you should NOT be trading. Give your money to a money manager. You will ALWAYS lose with an emotional attitude like yours.
Elliot: You are right
If I put too much emotions into it, I will definitely always lose.
If you have a margin account at Etrade you might want to read this:
http://www.pinnaclevaluefund.com/reports/StockStrat(26).indd.pdf.
my accountant reminded me that i do not have the stock paper certificates….etrade would be holding them…does that make a difference? I have not read the above pdf, i’ll look now, though.
Pretty hard to find a money manager that would watch over funds like his own.
can someone steer me to really see if the stock side is “covered?” I guess I could call etrade!
Thank you John! your URL didn’t completely highlight so I went back and copied and was able to see your article, and I called etrade and yes, they said they have sipc! worth 500,000 coverage and then London insurers, he mentioned 600 million..so I think I’m covered! I love Etrade vs ameritrade (ease of website, portfolio view mostly is what i really really like)…so I had almost all people i know use etrade instead, so I’m hoping I did not steer everyone wrong!
John: Great article! I have definitely learned something new! Thank you!!!!
kate: the article from John was very helpful and I’m glad that you called ETrade to give you some confirmation. As long as you aren’t shorting a stock or buying with money you don’t own (on margin), I wouldn’t worry about it.
If you have over $500,000 in assets though, i would caution you to move some away from it however since you just don’t need the hassle.
I think the fact that ETrade cannot handle the write down is bogus but the fact that the worry will cause people to pull their money away from the brokerage is a valid one.
It would be interesting to see what happens from here because the stock is pretty dead at this point. I actually believe it will go back up a bit once they announce the actual write down amount (which I don’t foresee them being able to do until the quarterly report).
I was so happy to have only one statement, I had gotten rid of amtd’s portfolio. I guess I could go back to them with some stocks, it’s probably free to transfer stocks, isn’t it? I should have asked the etrade guy… I watched Mad Money Cramer and he mentioned “toxic” about the reports from Etrade? and later he said citigroup mentioned bankruptcy and he said that they would not use that word “idly”. That’s scary!!!!!!!
kate: I don’t think you should worry too much. If you do however, you should get out right now. There is no point to worry and not do anything about it.
Even though we are insured, I’m sure there would be some hassle in getting our money back.
I can’t believe there are no merger or buy talks yet though. We will see during the coming days since there isn’t much room for the price to go down.
so what are u gonna do now–buy more shares or just sit on it?
nick: a post is scheduled to go out in 10 minutes which will address the question that you have
I bought a couple of thousand more shares at 3.90 yesterday. That brought my total shares to 10,000 and cost basis to 8.39. I gained $14,500 today, but, I am still down 33,959.70. It goes to show that if you lose 50% of the stock value, it takes a 100% move up in order to just get back even! I will buy more on pullbacks (though I must admit now ETFC is becoming a fairly large holding in my portfolio).
interesting! Cramer was so negative about ET that after i bought $2000 worth Monday, i sold for 986 profit today, Tuesday. I had bought AMTD and still have that lagging in my portfolio, that’s the only reason I did not have any ET stocks anymore (the $6 dividend January 06? for AMTD). I sold some AMTD to break even with that dividend I was investing for a couple years. Good luck!
Gldoc: Hmm. Good for you that you are able to buy more yesterday when everyone is selling
Timing turned out great!! I’m not sure how much you have in your overall portfolio but $50k on one stock is not a small chunk. I would scale it back to a level that you are used to since anytime you aren’t treating with demoninations that you are comfortable with, emotions tend to run higher and mistakes are usually made.
I’m not sure if you are an experienced trader or not but be careful when you keep buying on pull backs with a stock that is drifting lower. It is a dangerous road even though you must feel pretty good about today’s pop after yesterday’s purchase.
kate: Good to also hear that you made money today
I definitely had more money today and I did yesterday but I’m still much in the red! 
I’m sorry if my comments came off sounding negative. I wasn’t trying to sound that way. It was problably due to the fact that I was watching my other stocks get hammered the same day, just not as badly.
I previously owened shares of ETFC when the price orginally hit 12/share and then sold when it jumped back up to 14. I was lucky in hind sight but I honestly believe that ETFC is currently a “broken stock” and not a “broken company”. If I had the money and time to spare, I would happily watch this stock run back up 100’s of percentage points. However, I do not believe in the practice of “averaging down” and find it’s practice dangerous to responsible portfolio management.
I will continue to monitor this stock and will keep your positions in mind. I hope that the bad news clears out soon but I do fear that it will hover under $5/share until investors can get passed the whole mortgage mess. When they do, anyone still holding on will be sitting pretty. ETFC made a bad mistake, but they have the right idea in their business model. Hold on for the long run if you are still holding on now.
No worries Sabbas. I understand that yesterday was not a fun day for people who are long stocks (today should feel good though I hope).
Good for you that you sold when it hit $14
I think most people who bought stocks while it was going down was in it for the long term. It doesn’t take a genius to figure out that the mortgage mess is not over. I think most people (myself included) just didn’t foresee that it can go THIS low 
I plan to hold it for a while. If you want to follow it, I actually bought more after this article was written so my basis is $11.96.
MoneyNing: Thanks for your comments. Yes, I consider myself experienced enough trading and investing. BTW, my investment in ETFC is ~84k – it became 50k! I wanted to invest 10% of my portfolio in ETFC. I also feel (like Sabbas said) the stock is broken, not the company. I have no rigid rules on averaging down, as long as I am convinced my pick is right. I like what Mohnish Pabrai, author of Dhandho Investor says: The market often confuses uncertainty with risk. There is great uncertainty with this stock, but, the risk – the risk the company will go out of business is low (even at 15% as Prashant Bhatia calculated). In other words, there is an 85% chance you will come out way ahead.As Pabrai says: large bets, infrequent bets and when the odds are in your favor, bet the farm. On the surface, it sounds like a risky bet, but it really isn’t IMO, especially if the stock is selling at a tremendous discount to its book/intrinsic value.
GIdoc: I agree with you that it is a broken stock only (as evident of me holding it). Actually, I wonder how many people held the stock from high 20s until yesterday and sold. That would really suck
I just hope that not TOO many people transferred their money out of ETrade since that would put a big cap on its value.
Thanks for the interesting reading…I always wanted to talk stocks, but never found a place yet…$986 probably sounds silly, my rule, since I started after 911 finally….is to wait for 1000 gain, no matter what my investment…it’s done pretty well for me…a very few times I waited and made a little more. smile…
When I first got hooked I noticed my symantec was up $8k. Been hooked ever since. I was forced to learn for work, read about 25 investment books, 90 percent of which told me to buy and hold. So i really love Cramer cause I agree, i like the theory sell when make 30-40%….although my strategy is different, I use that when I am not sure or have invested quite a bit more than usual. Thanks again!
kate: Your rule might not be scientific or anything but it does help you get out of a stock if it goes up quickly which is always good. If everyone can gain $1000 from their purchases, they would be very happy by now
Cramer is definitely a character! He seems to know what he’s doing but he’s probably not as good as everyone wants him to be
What he does is very hard though since he has to project that ALL his tips are correct when the industry isn’t setup that way!
I figured it’s not worth the book work unless you profit at least 1000 minus taxes…also, it was less math, although I’ve finally gotten around to making an excel sheet to figure the 35% gain, I sound like a real math dimwit, I guess I am.
kate: No worries because that’s what Excel is for! I’m glad you’ve found something that works for you though. I guess as long as you are making good money, who cares how!
What’s the prevailing thinking among some of you ETFC stockholders now? I can’t see this going any lower (I say that now), and can’t get the company’s strong intrinsic value out of my thinking.
Buy more or hold nervously?
ETFC: I say buy and hold… The intrinsic value of this brandname company can’t be understressed. And the obvious conflict of interest of a bank (Citi) – which has its own subprime problems – putting out an analyst note encouraging a run on Etrade is crazy. When the dust settles there’s gonna be some serious legal battles. Bottom line: Etrade is NOT going out of business & it’s been mispriced as if the “End of Days” are upon it.
A classic Warren Buffett opportunity here… Control your emotions… Buy it and forget about it. Wake up in 2-3 years with +300% gain. Same thing happened after 9/11 with SCOR re.