Morgan Stanley (MS) will buy E-Trade Financial (ETFC) in an all-stock deal valued at $13 billion as online brokers have cut stock and ETF trading commissions to $0.
The E-Trade deal comes on the heels of another major acquisition in the brokerage space. Last November, larger brokerage rivals Charles Schwab (SCHW) and TD Ameritrade (AMTD) agreed to merge in a $26 billion, all-stock deal.
Under the terms of the latest deal, Morgan Stanley will pay $58.74 per E-Trade share. The deal is expected to close in the fourth quarter.
"E-Trade represents an extraordinary growth opportunity for our wealth management business and a leap forward in our wealth management strategy," said Morgan Stanley CEO James Gorman, in the press release. "In addition, this continues the decade-long transition of our firm to a more balance sheet light business mix, emphasizing more durable sources of revenue."
The combined company will have $3.1 trillion in client assets 8.2 million retail client relationships and accounts, and 4.6 million stock plan participants, according to Morgan Stanley.
Thursday, February 20, 2020
Saturday, February 15, 2020
dead investing
Google "Fidelity dead investors" and you'll see a number of stories come up. The Conservative Income Investor informs that when conducting an internal performance review of customer performance from 2003 to 2013, Fidelity learned that those with the best returns were "either dead or inactive." Hedge fund manager Mohnish Pabrai refers to that study in a speech. In June, Moneyvator.com upgraded the finding's status to public, writing that Fidelity had "released a study" to that effect.
Well, maybe. My Fidelity contact has not heard of such a thing, nor has Morningstar's Fidelity Canada contact. Suffice it to say that none of these citations came linked to the original source. (Such is the Internet.)
However, the general notion is sound. As William Sharpe explained decades ago, and institutional investors have learned to believe fervently (no split infinitives here!), investing is a zero-sum game. One side wins on a trade, the other does not. More trades lead to more costs, which must be overcome by notching more than one's share of wins. Sure, that can happen. But for a great number of investors, on average? Highly unlikely.
Even if Fidelity's retail customers trade as well as professionals, and are not beaten in aggregate by portfolio managers, as a group they don't figure to overcome the friction caused by trading costs.
Well, maybe. My Fidelity contact has not heard of such a thing, nor has Morningstar's Fidelity Canada contact. Suffice it to say that none of these citations came linked to the original source. (Such is the Internet.)
However, the general notion is sound. As William Sharpe explained decades ago, and institutional investors have learned to believe fervently (no split infinitives here!), investing is a zero-sum game. One side wins on a trade, the other does not. More trades lead to more costs, which must be overcome by notching more than one's share of wins. Sure, that can happen. But for a great number of investors, on average? Highly unlikely.
Even if Fidelity's retail customers trade as well as professionals, and are not beaten in aggregate by portfolio managers, as a group they don't figure to overcome the friction caused by trading costs.
Wednesday, February 05, 2020
who benefits from the stock market?
(Reuters) - Donald Trump loves to trumpet the hot U.S. stock market as a key achievement of his presidency, and he was in full self-congratulatory mode on that front during Tuesday night’s State of the Union address.
“All of those millions of people with 401(k)s and pensions are doing far better than they have ever done before with increases of 60, 70, 80, 90 and 100 percent and even more,” Trump said in his address to a joint session of Congress.
While pensions and retirement funds were lifted by the rise in stock markets, the president has avoided talking about one key point about who really benefits when the market rallies: Most of the gains go to the small portion of Americans who are already rich.
That’s because 84% of stocks owned by U.S. households are held by the wealthiest 10% of Americans, according to an analysis of 2016 Federal Reserve data by Edward Wolff, an economics professor at New York University. So when the stock market has a blockbuster year - such as the nearly 30% rise in the S&P 500 benchmark index in 2019 - the payoff primarily goes to people who are already rich.
“For most Americans, a stock price increase is pretty immaterial to their well-being,” said Wolff, who published a paper about wealth inequality in the National Bureau of Economic Research in 2017.
Roughly half of Americans own some stocks through a brokerage account or a pension or retirement fund. But for most people, the exposure is too small for market gains to be life-changing or leave them feeling much better about their finances, Wolff said. “They’ll see a small increase in their wealth, but it’s not going to be anything to write home about,” he said.
What’s more, nearly 90% of families who own stock do so through a tax-deferred retirement account, meaning they can’t access the money until they reach retirement age, unless they pay a penalty, Wolff said.
“All of those millions of people with 401(k)s and pensions are doing far better than they have ever done before with increases of 60, 70, 80, 90 and 100 percent and even more,” Trump said in his address to a joint session of Congress.
While pensions and retirement funds were lifted by the rise in stock markets, the president has avoided talking about one key point about who really benefits when the market rallies: Most of the gains go to the small portion of Americans who are already rich.
That’s because 84% of stocks owned by U.S. households are held by the wealthiest 10% of Americans, according to an analysis of 2016 Federal Reserve data by Edward Wolff, an economics professor at New York University. So when the stock market has a blockbuster year - such as the nearly 30% rise in the S&P 500 benchmark index in 2019 - the payoff primarily goes to people who are already rich.
“For most Americans, a stock price increase is pretty immaterial to their well-being,” said Wolff, who published a paper about wealth inequality in the National Bureau of Economic Research in 2017.
Roughly half of Americans own some stocks through a brokerage account or a pension or retirement fund. But for most people, the exposure is too small for market gains to be life-changing or leave them feeling much better about their finances, Wolff said. “They’ll see a small increase in their wealth, but it’s not going to be anything to write home about,” he said.
What’s more, nearly 90% of families who own stock do so through a tax-deferred retirement account, meaning they can’t access the money until they reach retirement age, unless they pay a penalty, Wolff said.