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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I cant help thinking Cramer on Mad Money said two different nights…using the word “toxic” about Etrade’s balance sheets…as much as I love Etrade’s portfolio website software!
stevearno: It can always go down lower but I think everyone holding it believes that the company is worth a lot more money even on its books. It will be interesting to see how much write downs they announce in Q4 because that will determine what the stock will do in the weeks after the announcement.
paulinator: I hope that in 3 years, we will be celebrating our purchase
kate: I think they have a ton of mortgage exposure and everyone seems to think that it could get really bad but we will just have to see!
MOST banks have a ton of mortgage exposure.. so what? The deposits backing the mortgages are insured by the Fed printing press. All banks are technically insolvant from time to time – Hell, the Bank of Japan was insolvant for 10 years. The Feds going to inject new cash by lowering rates. I think if Etrade was a “pure play” on mortgages I’d be more worried, but they’re diversified & their core business is trading. The resurgence of volatility in the market is likely to be good for them.
paulinator: It’s great to hear bullish comments when you own the stock
I’m definitely in this for the long haul. Let’s see how long it will take them to recover 
MoneyNing: I think how long it will take depends on 2 things.
1) Growth in deposits & trading accounts will help the balance sheet. Which we all have some control over.
2) Growth in short interest. ~7% right now. These guys are going to get squeezed at some point – with ~47% insider ownership its going to happen sooner or later… Can you say “share buyback”! At these prices any free cash flow is going to be used to give the shorts a really bad haircut.
Your point #1 is actually VERY worrysome. The fact that the market is so bad these days does not help people being nevous of their money being in ETrade. It provides them that much more incentive to take money out of there to minimize risk. In the coming days, we will find out how much pain this has caused ETrade.
7% is nothing big though. I think 20% would be considered big. I don’t think ETrade is going to do any share buybacks right now because they are probably taking pre-cautions that there “might” be bigger write downs. The last thing they want to do is buy shares back and then not have enough cash to pay off their bad loans.
Long term…
They do have to get this mortgage junk behind them. Which means, there maybe even better value to come.
We’ll see I guess. I’ve got $50k in at $4.80. I’ll double up if it hits $2.00.
paulinator: You have much more into this stock as I do so I wish you luck!
It might take another 6-18 months for this whole thing to play out so we’re in for a fun ride
Two class actions filed against Etrade today claiming errors in filings and disclosures.
Saw a bit of life yesterday, but I fear the rally may be short-lived given investor red flags that go up when reporting suspicions are raised.
Might it go down further?
stevearno: Now it is just anyone’s guess since you never know if someone will bet on it going long or short in the near term. Most people won’t touch this stock right now so it will have a tendency of having more down days than up. If you are in it for the long term though, then there is a good chance that it will be higher than it is now.
ETFC surged to 5.33 today, with reports stating its going to be sold off. Do you think this will go back to 20ish if its accquired by bigger company.
Vijay: I don’t think it will go back to 20ish if it is acquired. Actually, I doubt it will be 20ish
I think getting 10-15 is going to be extremely great for the company if it is sold now.
Plesantly surprised by Friday’s ETFC’s action. Up 25% on a volume of 93 million shares! Buy out of part or whole of the company appears likely. External cash infusion is another possibility (which I think is less likely). The stock appears relatively safe to buy under 6 dollars and possibly up to $7. My average price for ETFC is now down to $7.60 (with additional buys).
Sorry, it should read: Pleasantly….
GIdoc I”m happy for you getting basis down to 7.60! I”m still too scared to buy further, since I don’t know enough about reading their financials.
GIdoc: Good for you. I admire your conviction about this stock!
kate: Me too! My cost is still at like $12!!!
i don’t know if i can quote cramer here, but this was interesting, his mentions of etrade. good luck, again!!
http://www.thestreet.com/s/jim-cramers-best-blogs/newsanalysis/investing/10391492.html?puc=_txtbooyah
kate: Great find! Thank you for the link! It seems like Cramer really hates that portfolio. This makes me a little nervous but at least we have the takeover to look forward to. It will probably not be quick enough for our patience though
I am glad it was okay to send the link, I’m not real familiar with this website, seems like every time I try to explore i get interrupted…or go off on a tangent…
It is rather scary, he usually never talks that bad about someone’s balance sheets so I will steer away from buying more…I got bit by lvlt, sprx (i think?) and gtw in my short career.
I think sending links are generally okay if you are trying to add to the content instead of just spamming. It’s bad when people see that you are putting your own links up (for people who have their own websites) since that means they are trying to promote their own site.
These are pretty tough times to own ETrade. I wish all of us luck!
http://www.thestreet.com/s/report-etrade-in-sale-talks/newsanalysis/banking/10391431.html?puc=_txtttt
more on etrade
I’m not sure how to exactly calculate my cost basis, but since it is upwards of $20 I really don’t want to, for fear of becoming suicidal.
Our economy is not looking good right now, despite stimulation from war. It seems that it will only get worse, not to mention energy costs. My impression is that ETrade profits from consumers making investments. Which consumers? Well in general which people are attracted to a do-it-yourself discount brokerage? If these consumers have no money to invest, and they won’t for a couple of years, then how can ETrade make any money?
Please enlighten me if I have mistaken ETrade’s source of income. If I am wrong and ETrade’s customer base is on average wealthier, then those people are probably leaving right now because SIPC doesn’t cover their huge portfolios, and ETrade is rumored to be susceptible to bankruptcy. This scenario is also bad. Is there a good scenario?
kate: Hmm. Nothing but bad news!!! The only hope seems to be the takeover but it seems like it will never be as high as my cost. I guess I shouldn’t care how much I bought it at though since what happened has already passed.
stockton86: You should realize that what’s important is the future and not the past! Don’t worry about your cost basis!
As for ETrade, it will be bad if the economy goes into recession but much of what a brokerage makes is based on margin interest. ETrade also has (had) a very strong banking side since people put deposits in. I’m not sure how many people have taken money out of them but no one will ever know until the next quarter report.
Yes, the future is important. Convinced that ETFC will continue to drop, I sold today @ 4.78, which was less than 25% of my original purchase prices (avg) : (
As for the banking side, 5.05% APY was great, now it’s just a smidgen above Citibank, and I’ve seen others out there that are higher (think I saw some savings accounts in Kiplinger’s that were higher). I’m sure there are other aspects of banking too, besides savings accounts…
I’m new to the concept of anything margin, I first heard the word this summer. I think I get your drift though, and perhaps many customers will be paying that interest for awhile, because their stock (bought on margin) has depreciated and they must hang on and hope it comes back in the near future, rather than sell and, how do you say it, pay off the margin? I certainly didn’t realize margin interest was a major source of income! It’s such a low rate, and I’m the type who would almost never purchase anything with money I don’t own! (a house being one of the few exceptions)
I might buy back in at 2 something (I can’t imagine a takeover of ETrade!), as I now have a vendetta for ETFC. BTW, when is the next report due?
stockton86: It’s good that you are able to pull the trigger and sell even at a lost since that’s a skill all in inself.
The bank interest definitely isn’t something to be happy about anymore but it’s comparable to everyone else I would say.
The margin interest actually is quite good for these companies since they are using our savings account money to lend to someone else at a higher rate
I sure hope that it doesn’t go down to 2ish! We will see how long it takes ETrade to get some additional funding.
Thanks MoneyNing, your comment really helps to fill this void inside of me where ~17k used to be! J/k but I guess I never thought of it as a skill to try to play the stock market and end up with a sore you-know-what hole : )
Anyway I’m glad to be out because I’m more comfortable knowing exactly what I’ve got, even if it is substantially less than what I started with. The problem is I’m young and I invested everything I had into one stock without any research whatsoever. Nearly ten years ago my father “liked” Etrade, and I foolishly thought that meant something this summer when I bought it up.
I’ve learned the value of research and diversity when it comes to the market, and it might be a while before I invest a large amount again.
I hope for your sake it never goes to two, but even if so I think you’ll do well in a couple of years. Additional funding? I don’t understand what you mean by that specifically (real newbie to how stuff works in the world).
stockton86: Not a problem. Just helping my reader and a fellow ETrade stock holder out
It’s good to get that relief sometimes but the important thing now is not to try to follow the stock’s every move after you sell it because there’s just no point. There are a ton of stocks out there that you can focus on so try not to look at ETrade for a while.
Research and diversify is really one of the most important things to do in investing so I’m glad that you learn this!
When I meant additional funding, I meant takeover, someone buying parts of the business etc etc. I doubt they can offer any bonds like Citigroup did but you never know
Thank you again for the advice MoneyNing, and good luck with your ventures.
stockton86
i feel so badly for you! I started with 2000 increments until i could get a feel for what stocks do…but i have bought big chunks of things and could have easily done what you have done…so i really feel for you!…do you read cramer? i have read about 25 books as aforementioned, and his is to the point, i havent finished the one that came out awhile ago, but i need to do that!!…one thing that seems to work is to buy something with a 6 dollar one time dividend and then get out the day after you have to own it, i’ve only done it twice, first time i had the cash to use for a year but ended up with a loss but the 2nd time i got out quick and feel i did okay…have to research and try it some more though! df, amtd and msft had a nice div. once….
ps i’m 49…til feb!
“A bottom is beginning to form in financial stock, Jim Cramer said on TheStreet.com TV’s Wall St. Confidential Web video Wednesday.”
http://www.thestreet.com/s/thestreetcom-tv-recap-seeing-the-bottom-in-financials/funds/tv-recap/10392049.html?puc=_txtbooyah
kate: Hmm… Did you read that special dividend trade somewhere? My take on this is that since the stock price will fall to reflect that special dividend as it is value lost by the company, instantly that would net a neutual gain. The only obvious upside is when it is actually announced, but you can’t really anticipate that just like you can’t really know who is going to be taken over next!
ETFC remains volatile, albeit now with a positive bias. I have bought some April 08 calls ($6 strike price). I increasingly feel the company will not go bankrupt. We will make money, but, patience (and an iron stomch) is needed. Hang in there friends!
WSJ NEWS ALERT: E*Trade Gets Cash Injection From Citadel
GIdoc: Good luck with that! Even though ETrade end up going down, I think it has potential!
kate: I think since the stock went down, most of the sellers would be gone unless they have MORE bad news.
I bought 1000 more shares today so my cost basis is less than $9 now.
MoneyNing: Thanks. I am glad your cost basis has come down. The market’s reaction to Citadel deal is interesting. It is like suing the doctor for hair loss after successful chemotherapy that saved the patient! Citadel is going to make out very well and IMO rightly so, because, they stepped up to the plate and risked a couple of billion bucks. Thanks to Citadel, ETFC’s subprime risk is substantially reduced and the risk of bankruptcy is virtually eliminated. Time to (continue to buy the dips if one can,) stay patient and reap rewards in a few months.
GIdoc: There’s definitely a dip today
I hope that you are right because the stock is getting increasingly cheap. Hopefully they don’t lose too much credibility and that customers stay with them.
Might trigger a buy-in by speculators. I’m surprised and not surprised that the stock’s been all over the place. I wonder how badly marketmakers will keep fudging around with ETFC and screwing us up.
stevearno: I would be surprised if speculators buy in when the clear trend of this thing is down.
However, I hope someone does since I’m not even sure why I’m still holding on to this anymore as I’m “hoping” rather than “believing” that it is going to go back up.
Hang in there… Remember why you bought the stock? Etrade is an excellent broker that lost its way into the mortgage mess. Citadel is cleaning up that part of their books… This isn’t going to end today, or tomorrow. It needs time to heal. But it will – unless america goes bankrupt. In which case, buy guns and booze. Take a vacation and come back a check out ETFCs price in 2009.
Hi friends,
ETFC is putting their house in order and expecting profitability for ‘08. I like their ads – the ones talking about trading in foreign markets. I brought down my cost basis to $6.10. I think, we should do very well in coming months. As Pablo said, hang in there!
GIdoc: Good for you. I think ETrade will hang in there too and I also bought some more. My basis is a little higher at $7.14. If the stock can really turn a profit in 2008, 2009 will an amazing year for ETFC.
MoneyNing: Thanks. I agree with you re: 09.
Folks, ETFC is coming back bigtime! Now my shares are down only 19%. The stock moved some 135% from its low of $2.08 recently.
Etrade continues to be strong. My cost basis now is $6.01. My shares are down only 17.24%. Actually, I had a 1000 share windfall I didn’t realize! I have forgotten an order for additional 1000 shares at $3 that apparently got filled on 1/15/08. Pleasantly surprised!
Hang in there folks, we will be rewarded.
Wow what a nightmare. I remember seeing when ETFC was down and thinking about all the people that lost money. Just keep price averaging and you should be fine!
Well looks like I’m ready to pick up some junk Etrade shares too…however since I waited I get the better discount.
As a company they totally suck like any other leech USA company, flog the workers till they do no more then replace.
If you like E trade then you got sucked in by the corporate advertising and deserve losses so you can learn.
Meanwhile the preferred shares are at $5 so maybe I’ll get them as I rule !
I love etrade and use it and bought shares NOT because of bad advertising ploys..but because i had ameritrade accounts first and the portfolios were SO confusing, when I tried etrade, i ABSOLUTELY LOVED IT and told everyone I knew NOT to open amtd accounts….darn it!!
I cant understand why amtd has such a stupid portfolio deal. I stil lhave some accounts with them and they have not improved as well as etrade.
E*Trade is a good broker, however, Mr. Bhatia from Citi dragged the stock down for a long time. He might have personal reasons to put ETFC negative but the fact is: E*Trade made big mistakes and paid the responsable CEO 10 or 12 million Dollars.
That stock is only for highly speculative investors.
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