2HRS2GO: Dissecting E*Trade's caution
E*Trade Group (Nasdaq: EGRP) dispatched an interesting e-mail message the other day. Let's read between the lines:
"Dear E*TRADE customer:
"I wanted to share some thoughts with you regarding what we all need to keep in mind as investors during periods of market volatility. Look, I don't want you to bail out now, because if the market tanks, my company is dead.
"No one can deny it, the market has recently moved sharply in both directions. However, for almost a decade, there has been an undeniable upward trend, as the U.S. economy enjoys the benefits of the longest expansion we have ever seen. We're still benefiting from unemployment and inflation rates that are well below their historic averages, and productivity growth continues to be near historic highs.
"So stop worrying about Alan Greenspan, go buy stocks and help prop up this market.
  |
| Have an opinion on this? |
|
 |
"Especially in times like these, it's important that all investors, myself included, need to take a step back to think about where we've been and where we're going so we don't overreact.
"And if you dare sell now, I will drive your desperate, extremely leveraged, super margined ass so far into the wall that you'll be mistaken for a bas-relief sculpture.
"Your investment lifetime will include a number of market cycles. How you react and manage these cycles will have a major impact on your success in building wealth -- especially mine -- over the long-term. Here are some key points to remember.
"Stocks are Long-Term Investments
"Investing in individual stocks and stock mutual funds is investing for the long-term. What does long-term mean? At least three or more years, ideally five years or more.
"Yeah, right. You and I both know that you never hold onto anything for more than a year, and most likely never more than six months. Think about it: one of the biggest selling points of our service is that our trades are cheaper than a regular broker, which means we expect you to trade a lot. A whole lot.
"If you were so inclined to think long-term, wouldn't you rather find a five-star fund manager and let him go through the heartburn and agony of market cycles for you? Instead you're here, and by golly, thanks for using us.
"Trying to time the market has been shown to be futile. But don't let us discourage you from trying.
"While stocks in the short-term may provide investors with an uneven ride, over the long-term, stocks can outperform other types of financial instruments like Treasury Bonds. In addition, stocks provide investors the best opportunity to beat inflation over the long-term.
"Or at least that's what the numbers show in theory. However, theory and practical application often diverge.
"For example, suppose you decided in January 1973 to buy shares of the leading tech company at the time, IBM (NYSE: IBM). It would have taken you almost ten years to get back to even on that investment, even as the United States went through one of its highest inflation periods ever. While you waited for a return on Big Blue, you went through four U.S. presidents, two Soviet leaders, a pair of Arab-Israeli military conflicts, the entire Iranian hostage crisis, most of Steve Wozniak's career at Apple (Nasdaq: AAPL) and the bulk of the Eagles' productive tenure.
"Want a really, really long-term view? Try this: although the Dow Jones Industrial Average has done nicely over the last 70 years, the venerable blue chip index didn't gain a point for roughly 50 of those years. That's a half century of doing nothing.
"Did I mention our excellent E*TRADE Bond Center?
"Always Consider Risk
"Different people have different risk tolerances, depending upon things such as age and income. Your risk tolerance and short and long-term goals should be important factors in determining what you buy and sell. If your goals are short-term, like less than one year away, it may be wiser to invest in a less risky instrument like a money market fund.
"Yeah, and why not put all your money into your savings account while you're at it? Speaking of which, did I mention our E*TRADE Bank (1)?
"Just keep in mind the relationship between risk and reward. Lower risk frequently translates into lower reward. Also, remember that what your friends invest in, may not be the best investment for you. It's best to invest in companies you understand and are familiar with.
"And that's our Peter Lynch Tip for the day. As with all public service announcements, you're expected to disregard this immediately, because if people only invested in what they're familiar with, our trading volume would disappear instantly.
"Let's face it, how many Cisco Systems (Nasdaq: CSCO) shareholders can explain all the possible configurations of routers and switches? What percentage of Oracle (Nasdaq: ORCL) investors fully understand relational database applications, supply chain management functions, sales and marketing software and Larry Ellison's brain?
"The best that the average non-engineer can do is examine the companies' financials, read the news and pray rapid growth continues. Hey, that's how many hedge funds do it -- when they bother to look at fundamentals at all instead of relying purely on stock charts.
"Your research can help you appreciate the long-term potential of these companies. At E*TRADE we have the tools and insights you need to research and understand various companies.
"Don't forget to diversify
"Over the long-term, it's wiser to diversify your investments over several asset classes (e.g., large cap, medium cap, and small cap stocks) and sectors (e.g., technology, health care, and utility) than to put all your investments in one particular part of the market that may be doing well at that moment. So when one part of your portfolio isn't doing as well as you'd like, it's counterbalanced by another part of your portfolio. Mutual Funds can help you diversify, since professional managers may invest in areas of the market you're less familiar with. Don't forget that international diversification is also important, as overseas markets may not move in tandem with domestic markets.
"And the more you diversify, the more business we get.
"Sincerely,
"E*TRADE Group, Inc.
____________________________________________________________
"(1) E*TRADE Bank is a division of Telebank, a wholly-owned subsidiary of E*TRADE Group, Inc. We issued more than $1 billion in stock to buy Telebank, so please use it.
____________________________________________________________
"Please respond to this message using the Talkback function below.
____________________________________________________________
"You received this message probably because you thought you were going to get some real news by clicking through the headline on Yahoo! Finance or ZDNN Page One. Instead, you got a silly little column.
"To protect your online privacy, make sure your browser doesn't accept cookies, and don't fill in the section that says "e-mail address" if you post a Talkback message.
"If you wish to be removed from our list, don't worry about it, because to be honest with you, this columnist is too lazy to keep a list." 22GO
Other issues:
"In exchange deals, we are not really seeing Ariba (Nasdaq: ARBA). It's pretty surprising given the numbers they're putting on the table, but they're just not there in the majority of our deals, or they get eliminated very early, because they don't have and haven't had really demonstrable exchanges up and running. i2 (Nasdaq: ITWO), we've seen them in a couple of deals, they don't really have an exchange either that's demonstrable and up and running, so they've gotten eliminated pretty early in all of these deals that we've seen."
On the other hand...
"Oracle, we're seeing them in most all the deals that we do today. They're pretty pervasive today."
To no one's surprise, Hoffman proceeded to run down Oracle: "If you look at the number of exchanges that each of us has won, I can only name two for Oracle, and we're talking about 75 trading partners for us, so I think we've won our fair share."
Nonetheless, the fact that Oracle -- a relative latecomer to the B2B marketplace field, compared to Ariba and i2 -- stands so visibly in the eyes of a top competitor should be encouraging for Ellison's B2B ambitions.>