Watching Sir Richard Branson fly into space last week was inspiring. I don’t know why there is this allure of flying into space and looking back at earth, albeit only for about two minutes. Space tourism, as they call it, is still reserved for just thrill-seeking billionaires with too much money and time on their hands. All eyes will be on Amazon’s founder, Jeff Bezos, tomorrow as he looks to be the next billionaire in space.
Back on earth, some of us have noticed that many large American firms updated us on their profitability this past week. Spoiler alert, banks are reporting stellar numbers. For large, diversified banks like JP Morgan and Citigroup, things are going quite well. In general, customers aren’t having any problems paying their bills. That’s great because the banks don’t have to take any losses on problem loans; the bad thing is that those problems generate a lot of fees.
For more narrowly focused brokerage houses like Schwab and Robinhood, things are going well but off the frantic pace from earlier this year. That’s when meme stocks were at their most crazed state. Robinhood is looking to capitalize on this recent activity with its own IPO. The brokerage firm is trying to raise $2 billion, valuing the company at a sky-high $40 billion. Looking at their filing points to some interesting data, namely how profitable some of these brokerage houses are.
The mighty Charles Schwab makes about $20 a year for every $10,000 a client has in assets with them (0.20%). That $20 comes from a mix of sources like trading revenues and interest from margin loans. That’s on par with the likes of Vanguard and Interactive brokers. Robinhood makes over a shocking 3% ($300), over 15 times more than the likes of Schwab and Vanguard. That is a huge fee hurdle to overcome. There should be no surprise that the more customers trade, the more the firm makes. It just goes to show you that day trading is tremendously profitable, just not for investors.
One of the keys to successful investing in keeping your costs down. Cost is one of the many factors when Apriem evaluates any investment opportunity and firms we do business with. It is impossible to control what the market does from day to day but keeping costs down is something that you can control.