Interactive Brokers is an automated electronic broker-dealer. Because they automate virtually everything they do, their cost structure is lower than their competitors. This results in Interactive Brokers having the lowest prices and highest margins in the brokerage industry. They also have fewer conflicts of interest than their competitors. All orders are sent directly to the exchanges or internally matched between clients. They don’t sell orders—like the retail brokers—and they don’t trade against their own clients—like the big banks.
Interactive Brokers is more akin to a tech firm than a traditional retail broker such as Schwab or TD Ameritrade. Interactive Brokers was founded by a programmer, Thomas Peterffy, and the man overtaking him as CEO, Malin Galik, has been a software engineer at Interactive Brokers for 28 years. Peterffy has said before that around 50% of all employees are programmers.
Continue reading “Interactive Brokers Maintains Its Strong Moat, But KPIs Worsen”
Most companies I’ve invested in have been ones that I wasn’t previously familiar with. I only became familiar with the product and industry after many hours of research. This isn’t on purpose—just a result of me not being a user of most public company’s products. The advantage of this is that I approach learning about these new products from a clean slate with few biases. The drawback is that I will probably never understand the product as well as I would if I was a regular user.
The opposite of this is Peter Lynch’s investing style: “Invest in what you know.” Lynch advised people to invest in companies they know and love. Logically, this makes a lot of sense, but I’m not convinced this method is any better (or worse). The advantage of Lynch’s approach is that a user might have a unique insight into the value of a company that other investors may not have or appreciate. The drawback is the user will almost certainly overemphasize their own experience with the company and may discount what the greater population thinks (i.e. the base rate).
Continue reading “Invest in what you know or what you don’t know?”
I’m a big space nerd. To the point that for my birthday two years ago my girlfriend flew us down to Houston to tour the Johnson Space Center (spoiler alert: it was awesome). Some of my favorite books the past few years have either been about the Apollo missions or how we’re going to get to Mars. So you can imagine how excited I was last year when we were out getting drinks with friends and one of the friends-of-a-friend was a woman who works at NASA. I basically bombarded her with questions the entire night.
One of the main things I was asking her about was what obstacles they still need to overcome to be able to get to Mars. She was giving me some pushback on what I thought I knew about space radiation and I remember starting the next sentence “I know [random blurb about space radiation].”As soon as I was done blabbering I thought to myself “why the hell did I just start that sentence with ‘I know’? I’m talking to a freaking NASA scientist about space travel and all I’ve done is read some books and online articles about the topic. That hardly counts as knowing.”
Continue reading “How much do we really know about our investments?”
You know that feeling you get when a crappy salesman is trying too hard to sell you something? That stereotypical used car salesman? Ugh, I can’t stand it. That’s how I feel when a CEO goes on and on about creating shareholder value. I was recently reading through some Bob Evans Farms (BOBE) conference call transcripts and I wanted to throw up.
When talking about strategic alternatives the company is considering, the CEO Saed Mohseni said “All options of Bob Evans are under consideration by our board of directors. And I believe that ultimately the board will make a decision that is in the best interest of our shareholders and create value for our shareholders.” Next, an analyst asked about a timeline for the strategic alternatives and his answer nauseated me: “I think the best timeline is when we feel that truly enhances shareholder’s value.” My bullshit-meter could not have gone off any louder—what the fuck does that even mean? He obviously wanted to avoid the question, but it’s like he thinks that as long as he throws “shareholder value” into the answer that shareholders will be happy. The ironic thing is that he owns very few shares (all of which were gifted to him) so I highly doubt he cares about shareholder value as much as he talks about it. And if shareholder value is such a huge focus of his, he should probably be gobbling up shares in the open market in preparation for all the value he’s about to create.
Continue reading “Shut Up About Creating Shareholder Value”