A Follow Up on TD Ameritrade

  • October 24, 2006

A subscriber left a comment today asking me about my decision to sell Ameritrade (AMTD) in light of the recently released quarterly results. My response to the comment turned out to be longer than I expected and I figured I would make it a blog entry instead.

The comment mentioned the highly entertaining and knowledgeable Jim Cramer’s take on the Bank Of America announcement. I have often been at odds with what Cramer has said in the past and am not surprised that once again he has a different take on Ameritrade.

When he was bearish on Pfizer (PFE) in December 2005, going so far as to say that investing in drug companies like Pfizer of Merck (MRK“could really hurt people“, I picked Pfizer up for my personal portfolio and also featured it in the January 2006 edition of InsideArbitrage. Without taking the generous dividend into account, the stock is still up more than 30% even after the recent pullback.

When I was bearish on the Florida homebuilder St Joe (JOE) and picked JOE as one of the most overvalued homebuilder in September 2005, Cramer was bullish on it as late as December 2005. As I mentioned in my follow up blog entry Housing Sector in Pain, staying bullish on St Joe would have definitely hurt investors.

As you may be aware, these are not isolated incidents and he is generally right less half the time according to CramerWatch.org. But I digress.

I did not sell Ameritrade just because of the Bank of America announcement. I also sold it because of lower trading activity in August, my outlook for a slowing economy in 2007 and because I did not want to sit on a 110% gain. The latest quarterly results came in below analyst estimates and trading activity continued to decline. Investors were clearly disappointed with the results and the stock fell another 4.75% today.

Would I consider switching to a free Bank of America brokerage account even if it did not offer any interest on money parked into the account? Certainly. I am usually fully invested in my brokerage accounts and park the cash portion of my portfolio is high interest accounts or in short-term CDs. With free electronic money transfers, there is really no incentive for me to leave the money in the brokerage account as the interest rate most online discount brokers offer is miniscule. I think the bigger concern for active traders would be trade execution and margin rates.

Regarding the offers by Ameritrade I mentioned in my last blog entry, there is no URL for the “free iPod nano” giveaway as I got the offer by mail. Here is a blog that mentioned this offer in September. The Ameritrade representative at the San Francisco Money Show mentioned that the $1,000 offer on a $30,000 deposit was only valid at the money show and I did not have a chance to think about it and make a decision later. Since the money show takes place in various cities every year and is free to attendees, there is a good chance you may see an offer like this again.