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Strategies & Market Trends : Roger's 1998 Short Picks -- Ignore unavailable to you. Want to Upgrade?

To: Rajiv who wrote (17296)	2/4/1999 11:19:00 AM
From: peter michaelson	Read Replies (2) \| Respond to of 18691

Rajiv: Is it possible that you are making the same error I did? Look at some of the other filings. I think most of that stuff went away in the recent buy-out. Oeri is completely out of the picture, new Board of Directors, etc. Peter

To: Rajiv who wrote (17296)	2/4/1999 11:57:00 AM
From: Fred Puppet	Read Replies (1) \| Respond to of 18691

I've got some comforting thoughts for anyone shorting JBOH. First, let's consider the effects that internet brokers have had on the brokerage business: 1. Trading and order entry is "easy" at the internet brokers, which has increased order volume. This only benefits some of the brokerages, but not all. Some brokers still make it difficult to place orders, or simply haven't attracted active accounts. 2. There are more competitors. New internet brokers have appeared, and traditional brokers have started internet subsidiaries. More competition means lower commissions per order. Eventually, commissions will settle at a level where the brokerages with the lowest overhead costs can make a profit. Traditional brokers with bricks-and-mortar offices that their clients can visit will be unprofitable, unless they are offering something that the internets can't, like financial planning services. 3. All internet brokers are "national". It used to be that people opened an account with a brokerage who had a bricks-and-mortar office nearby. That created "local" brokerages in different parts of the country that were not in direct competition. On the internet, it doesn't matter where you're physically located, so all brokers are now "national". That means that all brokers are now in direct competition. The larger brokerages benefit from economies of scale, being able to spread overhead costs like advertising over a large number of orders, to reduce the cost per order. 4. There are conflicting forces. Some brokerages are benefitting from increased order volume. All brokerages are being squeezed by falling commissions and increased competition. A few brokerages will receive a net benefit, since the number of orders will grow faster than the profit per order drops. A majority of brokerages will be hurt by the internet in the long term. The primary losers will be the small brokerages who still maintain bricks and mortar offices but do not offer financial planning services. Next, let's take a look at some specific companies. The company that started this frenzy was AMTD. In the most recent quarter, AMTD reported net revenues of $52.117 million, up 103% relative to the same quarter a year ago. In the quarter, AMTD made a profit vs. a loss last year. So, AMTD is one of the companies that benefits from the internet; their order volume is growing faster than the commission per order is falling. In contrast, in the most recent quarter JBOH reported net revenue of $15.10 million, DOWN 23.6 percent from the same quarter a year ago. Last year, the quarter had a profit, this year it has a loss. JBOH is one of the many companies that are being squeezed by the internet. Their customers are moving to competitors like AMTD who can afford to charge lower commission. To stop the flood, JBOH has reduced commissions to the point that they operate at a loss. The brokerages that do benefit from the internet had their stock prices bid up a long time ago. Now, it seems that people who missed out on the good companies are bidding up the brokerages who will in the long-term be bankrupted by the internet. Amazing!