Saturday, July 30, 2011

Trefis Now Available on E*Trade

Customers can tap into the novel research service that updates stock valuations based on changes in revenues and earnings. Plus, hedge fund Citadel turns up the heat on E*Trade management.

Investors who analyze fundamentals, by poring over a company’s balance sheet and income statement for clues to changes in its stock valuation, should take a look at Trefis. The firm provides a quick view of what a company does to earn its money, and whether it’s worth its current price.

Trefis ( opened in 2010, and this month has partnered with E*Trade (, integrating its basic service into the online broker’s Website. Christopher Larkin, a senior vice president of retail trading and client services at E*Trade, says, “Trefis is going to help our customers understand how a company’s product impacts the stock price.” Larkin says E*Trade emphasizes the importance of understanding the drivers of a stock price, and believes that Trefis (see “DIY Value Analysis,” Aug. 16, 2010) is a great educational resource.

Trefis tracks technology, media, telecom, consumer, retail, automotive, financial services and energy companies, and plans to expand to other industries such as pharmaceuticals, biotechnology and industrials. It also intends to cover companies listed on non-U.S. exchanges. It currently models the stock prices of 187 U.S. companies.

A Trefis-generated graphic will appear in the right-hand column of the display when an E*Trade customer looks at a company the research outfit covers. This snapshot also shows some fundamental data, a small chart, and news headlines for the stock.

Larkin says, “Customers are demanding more ways to interact with data, and we think Trefis did a good job from a visual standpoint.” If, for example, you want a quote for Apple (ticker: AAPL), Trefis’ graphic displays the stock price its model calculates, along with the percentage that each of the firm’s product lines contributes to that price. For Apple, Trefis estimates a stock value of $510 per share, which is about 32% higher than last Wednesday’s close. Its model calculates that almost 54% of Apple’s market value is driven by iPhone sales, and about 12% from the iPad.

The model components, developed by a team of MIT Sloan School of Management grads, can be explored by clicking on the graphic and playing around with the assumptions that have been built in by Trefis analysts. You can change price and marketshare forecasts for product lines, and see how that affects the stock-price estimate.

The Trefis share price is a combination of forecasts for a company’s products and other revenue sources. The forecasts calculate future revenues, costs and cash profits, the latter of which is discounted to the present using common Wall Street valuation methodologies.

Trefis updates its models at least every quarter, when earnings are announced, and revises its thinking along the way. It also updates whenever there is a meaningful event, such as a merger, acquisition, divestiture or product launch.

You can access this information from Trefis’ Website if you aren’t an E*Trade customer; a basic membership is free. In addition, you can play with the model on E*Trade’s Website without logging in.

As a data junkie and student of econometrics, I had a great time experimenting with the Trefis forecasting models. They’re very interactive and can help an investor who might not have the time to slice and dice annual reports and Securities and Exchange Commission filings to get a look under the hood of publicly traded firms.

If you want more, including access to the Trefis community so you can trade modeling ideas and see what others are predicting, you can subscribe to Trefis Pro for $14.95 per month, or $149 per year. There is a free two-week trial available for the Pro service, although you do have to enter your credit-card number to qualify.

E*TRADE IN PLAY? The online broker last week got attention for other reasons. Chicago hedge-fund Citadel, which owns nearly 10% of E*Trade Financial (ETFC), disclosed it was unhappy with the firm’s performance and management, and would like it to consider selling itself, among other options.

DO IT YOURSELF: TradeKing just launched TradeKing API, a set of technical-programming instructions that allows you to write your own trading application, or app, that ties into your account. It can also bring in applications and Websites from other developers to customize the appearance and functionality of your brokerage experience.

While an API (application-programming interface) allows you to create your own system, it’s more likely that developers and technology partners will create apps that can customize your trading environment. TradeKing refers to the launch as “a whole new avenue to deliver greater choice for the firm’s more than 250,000 clients,” but it’s also a way to bring data and content to the customers who want it.

Most third-party applications that tie into other brokers (among them E*Trade, Interactive Brokers, MB Trading, TradeStation, TD Ameritrade and OptionsHouse—see “Here Come the Third-Party Apps,” Aug. 9, 2010) require an additional fee. For instance, trading-automation service CoolTrade (, which can execute trades via all brokers mentioned here, costs $3,990 per year for a subscription.

LIGHTSPEED BUYS SOME OPTIONS: Lightspeed Financial, which focuses on professional retail traders and institutions, has expanded its options-trading technology by buying Chicago-based Greenmoor Financial Group. Greenmoor ( publishes Green Trader, its proprietary front-end trading technology. The system includes an order-execution and management module that provides both simple and complex option execution. The Green Trader suite also includes tools that assist customers in identifying trading opportunities using client-specific parameters. Its Trading Opportunities Software, or TOS, includes algorithms that can identify market movers and changing market conditions.

Lightspeed ( will offer the Green Trader front-end to clients, and also acquire Greenmoor’s registered broker-dealer business, Greenmoor Financial. Lightspeed mostly focuses on trading stocks, but CEO Stephen Ehrlich recognizes the opportunity to boost his customers’ options-trading. Ehrlich says: “Our existing customers are increasingly turning to this burgeoning asset class to enhance their trading strategies—whether it’s to hedge a position or to generate income. As such, we are committed to expanding our footprint in this important segment of the market.”

Published in Barron’s, July 25, 2011

Posted by twcarey on 07/30 at 02:31 PM
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Saturday, July 16, 2011

Clearing Up Cost-Basis Confusion

New IRS rules for cost-basis reporting are here. That means headaches, and opportunities for brokerages that can automate the task.

The first phase of the IRS’ revised cost-basis reporting rules—requiring brokers and investment managers to report not only the total proceeds from an investment sale, but also the amount paid for it—is under way, and is already prompting some rethinking. Since our readers have identified the tax switch as a key concern, we thought it was a good time to describe what’s up. But first, a little background.

The initial phase went into effect at the start of this year, covering stocks purchased after Jan. 1. For 2012, brokers will have to report similar information to the IRS about mutual-fund sales and, in 2013, the program will be expanded to options and fixed-income. Any position opened prior to Jan 1, 2011, is subject to the previous rules: You have to voluntarily report the cost basis on your tax returns.

Scivantage (, publishers of Maxit cost-basis reporting systems, is one of the software providers working with online brokers to keep track of transactions and other factors that affect cost-basis calculation. On its behalf, Celent, a research and consulting firm, published a report entitled, “Cost Basis Reporting: Where Are We Now?” in late June. A copy is available at

The report says many brokers may have panicked in trying to meet the IRS mandate. Isabella Fonseca, research director of wealth management at Celent and co-author of the study, says the regulations, “were significantly more complicated than firms had anticipated. The rush to meet the government’s requirements has led to short-term solutions and a second round of long-term selections.”

The 1099-Bs investors receive from brokers early in 2012 will have a slightly different look, and the Celent report points out the likely fallout: “…firms are likely to experience an influx of inquiries from clients. Questions may include why some security types are showing [up], but others are not (as a result of later compliance dates for different securities).” In other words: a headache for brokers as they comfort their bewildered customers.

There is a silver lining for brokers that get it right. The ability to help customers manage the tax consequences of a trade can be a terrific benefit. Though some features—such as short-term versus long-term after-tax comparison, tax-lot harvesting, pre-trade tax analysis, and pre-trade wash sale identification and analysis—may not seem to be of critical importance right away, in the long run they are exactly the ones that will keep investors happy.

The free downloadable reportpoints readers to the Scivantage suite, of course. But it also paints an interesting picture of the current reporting conundrum.

The main issue, in our opinion, will be identifying wash sales—the sale of an investment at a loss, followed by the purchase of a similar investment within 30 days—through multiple accounts. The IRS doesn’t care whether you sold a stock at a loss in your Schwab account, then bought the same stock again two weeks later in your E*Trade account. If you do that, you cannot count the loss on the initial sale against your capital gains.

Right now, identifying cross-broker wash sales takes an eagle eye. We’ll bring any automated solutions to your attention.

SCOTTRADE ( is launching its mobile trading app, and we got a sneak peek at a pre-release iPhone version. (Android and BlackBerry versions should be released simultaneously.)

The app is wrapped in the color I think of as “Scottrade purple”; those familiar with the firm’s Website will be comfortable immediately. Four icons at the top of the screen that let you switch between trading, account data, and research, plus a quick tap to return you to your Home view. The Home page displays market data and has links to real-time news.

You can trade stocks, exchange-traded funds and simple options, and enter some conditional orders as well. There is no complex options trading, though you can set up a one-triggers-another order.

The app brings real-time account and market data to your mobile device, including simple graphs that allow you to change the time frame. Lists of gainers and losers are in the “Markets” section of the Research tab. You can set up a watchlist, and view fundamental data on a stock as well.

There’s no mutual-fund trading in the app, but that’s not a function most investors need on a real-time basis anyway. 

Published in Barron’s, July 11, 2011. 

Posted by twcarey on 07/16 at 02:29 PM
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Saturday, July 02, 2011

Traveling to Europe at Lightspeed

The professional trading site expands abroad, while E*Trade, TD Ameritrade and Fidelity win mobile honors. And an interesting new iPad app from Interactive Brokers.

Lightspeed Trading, an online broker aimed at professional traders and smaller hedge funds, has been on a buying spree. The most recent acquisition, its sixth in the last five years, is the Irish unit of Lime Brokerage International. This purchase gives the firm entrée to all of Europe.

"We think there’s a growing appetite of active traders in Europe who want access to the most liquid markets in the world,” says Stephen Ehrlich, Lightspeed’s CEO. The initial phase of the acquisition will allow European customers to trade in the U.S. markets.

Ehrlich reports that his firm gets about 1,000 requests a month from European traders, and is pleased that Lightspeed ( will soon be able to fulfill that apparent need. The second phase of the integration would allow U.S. traders to trade European markets; Ehrlich expects that to happen in the latter half of 2012 or early 2013. “Having the broker/dealer license in place gets us started, and gives us credibility in those markets,” Ehrlich says.

Most of its previous purchases have been aimed at acquiring technology, but Lightspeed’s geographic expansion is a very timely one, based on our soundings. When we recently asked the trading community what areas of retail investing would grow fastest over the next 10-15 years, several pointed to international markets ("A Crystal Ball for Online Trading,” June 6).

Lightspeed expects to differ from internationally focused outfits such as Interactive Brokers ( with technology as well as competitive pricing. Because it lacked the appropriate broker/dealer license, Lightspeed wasn’t able to market itself in Europe. Now it can.

One key aspect to the purchase is Lime’s “passport” license that allows it to operate all over Europe. Once the regulatory hurdles have been cleared, Ehrlich expects to tap into the large pool of local financial technology talent. The Irish subsidiary of Lime ( is currently dormant, so Lightspeed will be restarting the business from scratch.

ANOTHER FAVORED TREND was mobile applications. Corporate Insight (, which provides competitive intelligence to the financial-services industry, recently published a report entitled “Money on the Move: Mobile Finance Review 2011.” We were given a peek at the report; a summary is available from Corporate Insight’s Website.

The analysts at Corporate Insight talked with 100 financial executives who are clients. More than two-thirds of the respondents said that mobile financial apps have had a “somewhat positive” or “very positive” impact on their firm’s business. Of interest to readers of this column: “Every executive we surveyed believes that their firm will have an improved mobile offering in the next 12 months as they continue to develop new platforms and features.”

The report notes that the fastest-growing area for mobile financial apps is the iPad. In May alone, Merrill Lynch/BofA, Chase and Vanguard have all launched new apps for that platform. Mobile capture of check images also began that month for Fidelity and Schwab customers. Corporate Insight lists E*Trade, TD Ameritrade and Fidelity as leaders in offering mobile apps to their self-directed clients.

COMBINING BOTH FOREIGN and mobile interests, Interactive Brokers has translated its Traders Workstation (TWS) application to the iPad. The international broker launched an iPhone app, iTWS, in 2010, but the new version isn’t just a photo-enlarged version. It’s a much easier implementation of the TWS than you can get on your computer, and really takes advantage of the iPad’s available real estate. You can see streaming quotes and charts, place trades, and monitor your account on iTWS.

IB’s market scanners are also built into iTWS, which you can run or edit from the device. For example, you can check out the most active stocks in Europe or Asia. Trade alerts can be customized so that you are notified of executed trades that originated from your desktop as well as your iPad.

If you create a “paper trading” account with IB, which lets you test the features of applications without placing real trades, you can also check out iTWS without risking any of your cash. The iPad app does force you to log out of the desktop application, so you can only have one device logged into your account at a time. This may be inconvenient, but it’s a good security measure. The app will log you out after 10 minutes of inactivity as well.

Not all of the dozens of order types available on the software platform can be used from iTWS, so this version is not going to replace the computer-based TWS. If your account contains more than 50 positions, you’ll only be able to see the top 50. 

Published in Barron’s, June 27, 2011. 

Posted by twcarey on 07/02 at 02:27 PM
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