mephistopholes

The Long Case for ThinkorSwim Group

The disconnect between Thinkorswim’s intrinsic value and its current market value that Mr. Makula asserts is a product of rogue speculation, gross mismanagement and deplorable marketing tactics of the business, specifically Investools’ incompetent upper management, a disservice to itself and to its investors. But most importantly, the disservice is to the consumer. Ultimately, it’s this consumer who will decide the fate of this ambiguous and irresponsible thorn in the once legitimate brokerage business’s side.

The multiple failed attempts to “consummate” the marriage between Thinkorswim and Investools (this was the brilliant marketing spin used on the Thinkorswim website to announce the merger of the two companies) are more than just a product of trial and error. The company has rebranded, renamed and restructured numerous times since the acquisition of the brokerage entity and through these trials and errors (mostly errors) they have learned one thing. Large account openings are what produce profits. Not rocket science by any means. But therein lies the ever-present problem of an investor education division that was founded on the premise of taking broke (or just over broke), everyday consumers and teaching them how to invest in the stock market by going though method-based education, which is not as easy as Investools would have the consumer believe in its shameless advertising. Net, the legacy investor education model based its success on its ability to sell customers of the basic education (which has dropped from around $4,000 to $199 over the past few years), into expensive advanced education, which Investools fashioned as “Masters” and PHD” education, although having no formal academic accreditation. The result is that Investools was never able to successfully show to consumers or investors that their educational methods could turn the average consumer from just-over-broke to a holder of a quality account (over 40K). What was once perceived by many analysts as a brilliant move to turn the education business into an automatic lead source for its new mistress backfired once people caught on and realized that these leads, for the most part, did not equate to “quality” account openings that the company now relies upon to sustain. To follow in the simplistic vein of Mr. Makula’s peculiar comparison of financial services to the ladies lingerie business, simply put, after Investools and Thinkorswim married, Investools failed to put out.

So, onward to plan B. The more intelligent of the two newlyweds, Thinkorswim, eventually realized how difficult it would be to leverage these seminar-esque marketing techniques and apparently got fed up with “informal SEC inquiries.” It seems blending shady seminar sales tactics with regulated financial services business under the same roof under the guise of the same corporation is not only bold, it is downright stupid. With that spawned the “informal” investigation. Heaven forbid if an alert consumer actually questions the magician’s sleight of hand on stage of one of these educational seminars. Incidentally, unless you are an Investools “subscriber,” meaning that you purchase access to their analytical tools platform, as well as have a brokerage account with Thinkorswim, these seminars are not only ineffective, they dangerously instill the notion that anyone can become a successful options trader by going through their education tract. Yet, the company consistently fails to produce metrics to support this claim.

So, regardless of the valiant attempt over the past five years to validate and obtain credibility in the emerging “investor education” arena, it was much easier for Thinkorswim (the one who wears the pants in the aforementioned marriage), to simply kill their spouse. And that’s what Mr. Barbara’s bell ringing on Friday signified at the close of market—the end of Investools. It also likely explains the subtle (very subtle) release or repositioning of those who were connected with the Investools seminar business. Perhaps Thinkorswim, the brokerage, is unhappy with many of its new bride’s friends right now. And they have every right to be.

If all works out in this latest strategy effort, the company will no longer be pestered by wanna-be options traders, non-valuable account holders or skeptical consumers. Their focus will, at least for this round, lie on catering to serious options investors who have already been educated by some legitimate means, whether by Investools educators or not (likely not). But are serious, educated options traders going to want to “join the revolutuion” and join the Thinkorswim big top circus at the competitor-crushing rates that the volatile company has basked in for the past year? Probably not for long.

As Thinkorswim’s new and improved education division under the guise of Thinkorswim is busy washing the blood from its hands and teaching its new breed of pre-educated options investors how to lose larger sums of money with its quasi-methodical approach (like spread trades), don’t forget there remains a legacy 275,000 “graduates” of the Investools old that have little or nothing to show for their investment except for some outdated handbooks and a blown-up account. There are also plenty more items of baggage that carry the scent of a shady downtown Holiday Inn conference room. The seminar business is a scent that is nearly impossible to wash out. Thinkorswim can run (or swim or whatever the hell they do) but they can’t hide. At some point they are going to have to face not just their investors but the consumers, both today’s consumers as well as the ones they left downstream. Used cars are one thing but playing with people’s retirement accounts is another. Consumers (even the smart options traders) will eventually get wise.
Incidentally, the boasting of the Barron’s rating is passé, highly overused, and increasingly irrelevant as Thinkorswim continues to complicate and implode its own business model, confuse investors and leave its consumers out to dry. It’s one thing for the marketeers of this thousand-pound gorilla to throw this distinction around. It’s all they’ve got. But it’s unsettling to see this reference popping up in articles from people who don’t even get a kickback from the company. Despite Thinkorswim and its supporters clinging to this annual distinction for dear life, it’s really not that cool of a distinction anymore and neither is the Thinkorswim trading platform for that matter. It is unnecessarily busy and lacks logical best practices that other platforms are QUICKLY becoming keen on. Barron’s will figure this out eventually (hopefully this year), especially with the surge of legitimate consumer/user-centric brokerage platforms appearing. Serious options traders are much better off investing their money in smarter, longevity-focused companies with more consistent (and ethical) practices and companies who employ educated financial practitioners, not ego-driven spin doctors like Mr. Barbara and his obsequious bunch of non-investor dog and ponies to run their business. These legitimate companies will prevail through the “educated options investor” bubble by employing people who know how to position a business for longevity and sustainable growth. The irony is that Investools, or thinkorswim, or whatever their name is this week has employed many smart people throughout the years who are prepared and capable of building competitive businesses in the long-term market. But ego, greed and stupidity ultimately drive this company.

It seems, regardless of Thinkorwsim’s public execution of its “new wife” on Friday, it will take more than a name change to wash the blood from its hands. As the company’s website theme suggests, this truly is a circus of errors. Cut and run. Short or long, cut and run.