Stupid eTrade, Are You Trying to Bankrupt Me?

I've been a loyal eTrade customer since February of 2000, and during the height of their instabilities last fall, I actually went against the grain, moving my checking account to the service, away from Wells Fargo, and even flipping their stock a few times for short-term sales when many thought they were headed to zero. But that's not to say the relationship is perfect. Over the years, there have been occasional annoyances, and today, errors on their part make it look like I'm about to file for Chapter 11.

This morning, Rackspace went public, the first technology company to IPO in quite some time in what's been a quiet year. And while, so far, their debut hasn't been all that amazing, I did manage to get some shares through gaining early access via my eTrade account, a usual sign that the stock would be headed down and not up, given my spotty track record.

(See also: Top Eight Worst Stock Moves I Ever Made)

But the fact Rackspace hasn't gone through the roof isn't the issue. The bigger issue is that prior to 5 a.m. this morning, I not only received confirmation from eTrade that my bid was accepted, but I received confirmation six times in the space of two minutes. And checking in with my account online, eTrade, despite only allocating to me the shares I had requested, actually looks like it withdrew the total amount of the stock buy for each confirmation. This means that instead of being cash-positive in my brokerage account, I show a deficit of more than $36,000.


eTrade Confirmed I Received Shares. And Again. And Again!
While I tend to believe this will be sorted out without any intervention on my part, I'm sure that this "glitch" will impact my ability to make trades if I wanted to. Not only is the actual cash I believe I should have unavailable, but if I sold other stocks in the account, I wouldn't have that cash available for different trades, as it would undoubtedly look like it was being used to pay down my debt.


eTrade Tells Me I Owe Them Some Serious Dough
eTrade doesn't get to participate in IPOs all that often, and it looks like they haven't quite gotten the process down. I just hope I don't start getting notice after notice that my account is "on margin" or that I get locked out. It's happened before due to stupid clerical errors like this, and I'm not interested in playing that game again. So eTrade, please get your act together and give me my money back. Thanks!

My Empty Stock Drawer

At the end of the calendar year, we have a little tradition when it comes to the stock market. Sell everything, and go completely into cash as the calendar switches from December 31 and starts again with January 1st. This year was no exception.

The reason behind my annual sell-off isn't the result of some chart-reading that tells me the market usually takes early January off (though sometimes it does). It also isn't because I have an innate need for a challenge, and see the move as starting the new year from scratch. Instead, it's simply that I do my own taxes every year, and don't want the hassle of tracking down individual trades that bridge a calendar year.

By making sure all my stock trades both begin and end in the same year, Intuit's TurboTax service can easily tabulate the gains and losses for each trade, and doesn't force me to dig through my eTrade records to see when a particular stock was purchased. Also, as I often buy and sell a single stock symbol multiple times in a year, I'm not left scratching my head and guessing where I should appropriately report I paid commissions. After all, if I have confusion, it's likely someone in the IRS will have confusion too, and might later ask me to clarify... leading to pain.

Clearing out my stock drawer (so to speak) also helps clarify what went well and what didn't over the year. There's no ambiguity as to whether one trade hasn't panned out yet or not.

So how'd we do?

Index	Q1	Q2	Q3	Q4
Me	+2%	+4%	+8%	+35%
NASDAQ	+<1%	+8%	+4%	-2%

That looks pretty good on its face. We were up more than 50% on the year. But if I dig deeper, it's clear I could have done significantly better if I completely ditched my quick trade strategy and had instead put all my money into Apple and slept on it.

Index	Q1	Q2	Q3	Q4
Me	+2%	+4%	+8%	+35%
AAPL	+8%	+31%	+26%	+29%

Being such an Apple guy, you'd think I'd have done the right thing, the smart thing, and given all I had to Cupertino. But I didn't. And while others have no doubt made out like bandits, I've ended up looking pretty silly, as the Mac and iPod maker more than doubled its market cap on the year.

I think a lot of people are looking pretty silly when it comes to AAPL. Even the most aggressive, pro-Mac guys, like me, couldn't have anticipated the kind of success Steve Jobs and team have delivered. But now, with Macworld approaching, and having cash on hand, maybe, just maybe, I'll do my part, and get back in the game. If I do, I promise I'll let you know.

Also See:

2005 Taxes in the Bag
The Stock Market Is Bleeding Us Dry
I Bet Wrong On AAPL, Again
Apple Stock Pays for AppleTV, New Airport Extreme
Taxes Completed Online, As Always
Top Eight Worst Stock Moves I Ever Made
Two Hours Of Apple Stock Plenty Profitable

My Contrarian Move to eTrade Bank

It seems nary a day goes by without getting a new story from Silicon Alley Insider or another financial pub commenting on eTrade's woes. While the company's recent struggles have been well documented, many are waiting for the other shoe to drop - the declaration of bankruptcy, the report of massive losses, or a stream of customers heading for the exits. (See: E*Trade Tries to Instill Confidence, Fails)

Amid the din of bad news, I've already said I'm not leaving.

In fact, I'm doubling down, not only by staying with the firm on the brokerage side, but in a new development, I've opened up an account with eTrade's bank as well. Now, from one institution, I can have my stock activity, as well as checking and savings. And I've picked eTrade.

Why? It's actually quite simple. eTrade offers 4% or greater interest in checking, while my Wells Fargo account counters with 1/2 of 1 percent - eight times less. Also, instead of waiting days to transfer money from my bank to the brokerage, it should take minutes. And with eTrade, I don't have to pay ATM fees anywhere. Effectively, every ATM on the planet is now my bank's branch. No more hunting down Wells Fargo and avoiding Bank of America, or requesting cash back at the supermarket.

Essentially, my money is now easier to get to, easier to move and easier to see grow. While eTrade takes its time to sort out its own financial issues, I've got mine solved.

Wrapping Up the eTrade Stock Story

Last week, after many, many acquisition rumors turned out to not come to fruition, eTrade announced the company had received a $2.5 billion cash infusion from an investment group, aimed to eliminate customer concerns over potential bankruptcy. At the same time, the company's CEO stepped down.

Thursday's news initially saw the stock jump from its depressed levels, touching briefly above $6 a share, up dramatically from its nadir in the $3.80 range just a few days before. But as soon as it hit $6, investors holding out for a bigger return from a potential buy from Ameritrade or Schwab saw this as their last hope to cash in, and a rash of sellers hit the exits.

I was one of them. As soon as I saw the cash infusion would be all the news we could expect for awhile, I got out, selling all I had at $5.73 a share. Most of the shares I had purchased on November 21st at $3.89 a share, but I had doubled down on Wednesday, the day before the news, with a big buy at $5.35 a share. All told, the week's earnings, just in eTrade stock, were more than $5,600 profit. Not bad.

Of course, any time I buy or sell as quickly as I did, my brokerage (eTrade, of course) doesn't like it, but I'd rather sell and worry about tax on profits than write-downs from losses.

Was the $5.73 sale a good idea? Apparently so. By the end of day Thursday, eTrade stock had fallen down to $4.82 a share. Those 91 cents a share to me meant a difference of $4,777.50 by selling in the morning rather than waiting until the afternoon. And on Friday, eTrade fell again, down to $4.60. But this time around, despite the low price, I don't think I'll be buying. As I see it, the big news has come and gone for a while.

Now I get to figure out whether I take this newfound cash and put it into Christmas presents, or if I put it back in the market.

eTrade's Losses Are Investors' Gain

The last time I mentioned eTrade's issues, I said I had bought in to the stock around $5.50, following a small recovery after bad news swirling around the company had decimated its market value. Not seeing the kind of continued growth I had expected right away, I sold my position a few days later around $5.65. I'd made a few hundred bucks, but nothing to write home about. But now I'm back in, and it's a different story - one that could be much more profitable.

After I sold on November 16th, eTrade stock resumed its collapse, falling below $4 a share - signaling to me the right opportunity to resume my eTrade gamble (Partly due to this article). So on Wednesday morning, I put a sizable chunk back into the stock, now at $3.89 a share. It looks like it may have been the right move, as while rumors of a potential merger with Schwab.com or TD Ameritrade have been swirling, the stock jumped about 25% today, ending at $5.33 a share, giving me a 37% gain in a two day period, and an "on paper" profit of more than $3,500 so far.

Why play eTrade? Because I believe they have the best brand among online brokerages, and that their customer base will be a valuable commodity, even if they are sold or merge with a competitor. It's also likely the eTrade name would be kept, if not too damaged. After all, who wants a new name like TDAmerE*Trade or SchwabTrade.com? An eTrade customer can only benefit from this.

As an investor, I believe my funds are safe, and that the value of the company is higher than it is today. I've made more than my fair share of bad stock trades in the past, whether from premature selling or simply bad buying, but I'll be watching this one close, hoping it turns out well.

(Also see: Silicon Alley Insider: E*Trade On The Blocks? Probably., BusinessWeek: E*Trade: The Merger Buzz Grows, or E-Trade Shares Spike on Takeover Talk)

The Run on eTrade Won't Have My Footsteps

Mob mentality, especially on the market, can be a dangerous thing. I've found that often, the best thing to do long term is to avoid the one-day panics as groups jump out of one stock or another, whether based on rumors, or even hard news. This week's activity in eTrade just may be exactly that, as I've seen the viability of my long-term broker put in question.

As speculation and analyst commentary stated, eTrade will likely be writing off massive loans that have gone unpaid, to the tune of multiple billions of dollars. Some have speculated the company could go bankrupt, or even be at risk of closure.

Obviously, given all my discretionary market funds are tied up in eTrade, and have been since the beginning of the decade, the thought has crossed my mind to transfer my cash out of eTrade, back into the bank, for later investment in another brokerage. Any of them. But even more than my thoughts of going with the crowd by giving into the panic, I've considered going against the grain by buying eTrade stock, which just might be oversold. Maybe I could even actually profit from the short-term timidity of others?

Regardless of that choice, which I haven't acted on, I'm not leaving eTrade. The brokerage has given strong service for a long time for me, and I have close to zero expectations that I'd find my funds were completely gone. That would be a scandal of epic proportions, one I don't see happening.

Buying on the Dips Can Kill Your Finances

In order to outperform the market, it's a required element that you take a contrarian bent - either through buying into a stock early, shorting one at its apex before an eventual descent, or buying stocks on the cheap, if you feel they have been cut down to size unnecessarily, or by too much, effectively meaning you're betting on a near-term rebound. While I definitely subscribe to a buy and hold strategy for some stocks of reputable companies with serious short and long term upside, I have fallen victim at times by trying too hard to be a contrarian.

Take Yahoo! (NASDAQ: YHOO) for example. Outside of my 401k, I have never been a Yahoo! investor, until yesterday. While I've written previously that I think Yahoo! has lost significant market share and mind share to Google in the search and online ads arena, the company is no slouch. Following Tuesday's quarterly announcements which disappointed analysts, the stock took a significant haircut Wednesday, dropping more than 10 percent. Effectively, the company's stock was on sale for more than 10 percent off. (Unless you start getting picky and looking at current or future P/E)

So, given I had some available cash in eTrade, I added Yahoo! to my portfolio for the first time. If the stock regains half its one-day loss, I'll be up 5%. But, as sometimes happens, the first day's losses continue the next day or even further. Not only did yesterday's pummeling not include a late-day bounce, but Thursday's trading has seen Yahoo! go down an additional 2 1/2%, meaning instead of being up a few hundred bucks, I'm down a few hundred bucks, and I have to root for the stock to rebound just to break even, let alone make money.

This isn't the first time I've lost money on hoping to catch a bounce. It's called "catching a falling knife". If you see a stock taking a dive, and you're trying to accurately pick the bottom, wrong guesses can draw blood, just as much as they can if you, like I once did in 2002, sold Sun Microsystems at 2 1/2 bucks a share. (It now trades at nearly $6)

The question is, will I wait for Yahoo! to rebound, and make money, sell quickly to cut losses, or hold on until I lose even more? Those are the three choices. For now, I'm holding and waiting for an eventual retracing.