A Follow Up on TD Ameritrade

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.


  1. Retail Investor
    October 25, 2006 at 12:00 am


    – Absolutely no argument that Cramer is as much wrong as he is right. The essence of the comment was more to give consideration to his specific comments on this topic – I often disagree with him but in this case, I do agree with his analysis that the reaction to the BoA announcement is overdone.

    – Maybe you have misunderstood the fine print in BoA’s announcement. You need to have $25,000 in non-brokerage accounts (checking, savings etc.,) to be eligible for this. If you are not an active trader, then the loss of interest in this $25K can compensate for the free trades and if you are active trader, then they restrict the number of free trades to 30 a month. At a 5% interest you are losing out on over $100 a month and you are gaining $5 to $150 based on whether you place 1 -30 trades a month. Is the subtle benefit in some cases worth the effort. I would continue to assume that you will not move your account to BoA 🙂

    – The link to the Nano give-away is here: http://www.tdameritrade.com/offer/nano.html

    – I have emailed my personal service rep at TD Ameritrade to find out if the $1000 offer is still being promoted and if it is post the URL here for your readers.

    – Disclosure – I went long on AMTD yesterday following the 5% drop with $12.5 Jan ’07 Leaps selling for a time premium of about 3%

  2. G.P.
    October 25, 2006 at 12:00 am

    Ah, yes. Cramerwatch.org. What an accurate analysis of stockpicking superiority (Hah). I look forward to hearing your improved version of Cramer’s stock market shows. I’m sure it will be a hit.

  3. Asif
    October 25, 2006 at 12:00 am

    Retail Investor,

    Thanks for the link to the iPod offer. It looks like the offer expired on September 30th. Please post the URL to the $1,000 offer if your Ameritrade representative is able to offer it to you.

    I did check out the BoA offer of free trades carefully and they say it clearly that free trades are available to "customers who maintain a combined balance of $25,000 or more across their Bank of America N.A. deposit account(s)."  You can find the link to the offer here. Deposit accounts include checking, savings, CDs and IRA accounts.

    I find that the Bank of America CDs offer a competitive rate and I like their 10 month high yield CD offering an interest rate of 4.9%. I have also used their "risk free" short-term CDs in the past as they were offering excellent rates and there was no penalty for early withdrawal.

    So I really do not see how someone would lose out on any interest if they were to park the cash portion of their portfolio in a Bank of America CD and use the free trades options. If an investor normally places around 30 trades a month (I cannot imagine why a retail "investor" would trade so much) and uses a brokerage account like the regular TD Ameritrade ($9.99 per trade), he/she could save almost $3,600 a year while getting interest on the cash portion parked in other Bank of America accounts.

    I can certainly see myself trying out this free account when they get around to rolling this out to the rest of the country early next year. Whether I would completely switch from Ameritrade to BoA remains to be seen and would depend on trade execution and other factors. What some of us may not realize about the Bank of America offer is that new investors who are just starting out may be drawn to this offer especially if they already have a BoA checking or savings account.

    Ameritrade continues to remain a highly profitable company, has high insider ownership and an excellent management team and while I would not short the stock at these levels, I do not like the risk associated with going long on it right now.

  4. Retail Investor
    October 26, 2006 at 12:00 am

    – The iPod give-away can apparently be obtained if you sign up at a local branch and ask for it. The $1000 give-away is not going on right now, but will come back – I have asked them to let me know when it is.

    – Did see that you can have your BoA $25K in CDs – so not that bad after all, but still disagree that this would affect AMTD’s business. Or maybe I am using a bad sample space – myself – I haven’t moved from TD Waterhouse for 10+ years even though I have tried almost all the systems out there – the familiarity and comfort of TD Waterhouse always brought me right back to it. I am however considering a shift to Fidelity Active Trader Services following the Ameitrade merger. So in any case, I do believe inertia will be a huge factor here.

    – Disclosure: I am now long AMTD – Jan ’07 $12.5 Calls that are now up 23% since my purchase on Tuesday thanks to the overall market strength if not a AMTD specific oversold rebound. I am not ready to sell though.

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