Should You Be Buying What Robinhood Is Selling? | Sidnaz Blog

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In rare cases, such pitches have paid off big time. More often, you’d have done yourself a favor by taking roughly half your money and lighting it on fire instead.

Just as Robinhood isn’t the first brokerage to offer commission-free trading, it isn’t the first to seek to “democratize” investing or to sell a piece of itself to its own customers.

On June 23, 1971, Merrill Lynch, Pierce, Fenner & Smith Inc. became the first New York Stock Exchange firm catering to individual investors to offer its shares to the public.

Thirsty for fresh capital in a struggling stock market, Merrill flogged its shares to its own customers, tapping the firm’s “awesome recognition among that vast segment of the population,” reported The Wall Street Journal the next day. “Primarily small investors, the type long championed by Merrill Lynch, quickly purchased the entire amount.”

Nearly 400 insiders at the firm unloaded a total of 2 million shares in the offering. From its initial $28 per share, the stock shot to about $42—a 50% pop—then closed around $39. That valued Merrill at 30.5 times its prior-year earnings, much higher than the overall stock market’s price/earnings ratio of 18.7.

Less than three weeks later, Merrill announced that its net earnings had fallen nearly 50% from the prior quarter.

For the rest of 1971, Merrill’s stock lost 9.4%; the S&P 500 gained 4%, counting dividends.

In 1972, when the S&P 500 rose nearly 19%, Merrill sank 7.7%. And in 1973-74, when the S&P 500 lost 37%, Merrill’s stock slumped by 61%. In its first three full years, Merrill’s stock lost three-quarters of its value; the S&P 500 fell only 5%.

Here in 2021, Robinhood’s offering is one of several trading and investing IPOs:

Coinbase Global Inc.,

the cryptocurrency exchange, went public in April, and

Acorns Grow Inc.,

which helps users invest in tiny increments, said in May that it expects to go public later in the year. Since its Apr. 14 debut, Coinbase is down about 27%. Robinhood fell 8% on its first day of trading Thursday.

One of Wall Street’s oldest and frankest sayings is “When the ducks quack, feed ‘em”—meaning that whenever investors are eager to buy something, brokers will sell it like mad.

Back in 1971, that was the brokers’ own shares. Roughly half a dozen major firms sold stock to the public soon after Merrill, including Bache & Co. and Dean Witter & Co. By 1974, according to data from the Center for Research in Security Prices LLC, several of them had dealt losses at least as devastating as Merrill’s.

In 1987, Jane and Joe Investor got invited to join in on the fun of Charles Schwab Corp.’s IPO, when roughly three million of the offering’s eight million shares were reserved for employees and customers of the firm.

Unlike Merrill, which was rescued from the brink of failure in 2008 when

Bank of America Corp.

bought the firm, Schwab went on to generate spectacular long-term performance. Over the full sweep of time since its 1987 IPO, Schwab is up more than 26,500%, or 17.9% annualized. The S&P 500 gained less than 3,500%, or an average of 11.3% annually.

However, Schwab went public in late September 1987. Only 18 trading days later, on Oct. 19, the U.S. stock market took its biggest one-day fall in history, plunging more than 20%.

Schwab’s stock got brutalized. In their first year, Schwab’s shares fell 59.1%. After three years, the market as a whole had gained 0.6% annually; Schwab’s stock lost an annualized average of 6.9%, according to CRSP.

How many of the original buyers in 1987 stuck around long enough to reap the giant rewards that came much later? That’s impossible to know, but the likeliest answer has to be: very few.

Every once in a while, outside investors in a brokerage IPO do well.

Goldman Sachs Group Inc.

began trading on May 4, 1999. If you’d bought Goldman stock in the IPO and held it ever since, you’d have earned 9.1% a year, versus 7.6% in the S&P 500, according to FactSet.

Yet Goldman was a giant then, as it is now; it was late to the IPO party because it had held on to its partnership structure for so many years. Most brokerage IPOs, like Robinhood’s, occur when the firms are younger and smaller.

That makes them typical. Companies selling shares to the public for the first time tend to be small, with minimal profits; they also require additional invested capital to sustain their rapid growth.

That’s what Savina Rizova, global head of research at Dimensional Fund Advisors, an asset manager in Austin, Texas, calls “a toxic combination of characteristics that points to low expected returns.”

On average, IPOs have severely underperformed seasoned stocks in the long run. And, history suggests, brokerages doing IPOs are better at timing the market for themselves than for you.

Write to Jason Zweig at [email protected]

More from The Intelligent Investor

The brokerage app Robinhood has transformed retail trading. WSJ explains its rise amid a series of legal investigations and regulatory challenges. Photo illustration: Jacob Reynolds/WSJ

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Pinterest Shares Fall as U.S. Monthly Average Users Decline | Sidnaz Blog

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Pinterest reported Thursday second-quarter net income of $69.4 million, compared with a loss of $100.7 million a year earlier.



Photo:

Gabby Jones/Bloomberg News

Shares of

Pinterest Inc.


PINS -6.01%

fell more than 14% in after-hours trading, as the online sharing platform said its monthly average users in the U.S. contracted during the quarter, a trend that accelerated this month.

The company reported 91 million monthly average users in the U.S. in the quarter, down 5% from a year earlier. Pinterest said that “engagement headwinds” continued this month, with monthly average users down 7% as of July 27. Globally, monthly average users increased 9% in the quarter.

“Our second quarter results reflect both the strength of our business and the recent shift in consumer behavior we’ve seen as people spend less time at home,” Chief Executive

Ben Silbermann

said in prepared remarks.

Pinterest saw its user growth soar during the pandemic, as shut-in consumers turned to the website for masks and other products. The company has said the pandemic may have pulled forward some user growth.

The company also reported Thursday second-quarter net income of $69.4 million, compared with a loss of $100.7 million a year earlier.

Adjusted earnings were 25 cents a share. Analysts polled by FactSet were expecting adjusted earnings 13 cents a share.

Revenue totaled $613.2 million, compared with $272.5 million a year earlier. Analysts expected $562 million in revenue.

Pinterest shares closed Thursday at $72.04 apiece, down 6%. So far this year, the stock is up 9.32%.

Write to Robert Barba at [email protected]

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Twitter, Texas Instruments, Intel, Las Vegas Sands: What to Watch | Sidnaz Blog

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Futures are rising, pointing to an extention of the rally on Wall Street for a third day. Here’s what we’re watching ahead of Thursday’s open.

A Texas Instruments office in San Diego, Calif., April 24, 2018.



Photo:

mike blake/Reuters

  • Railway operator

    CSX


    CSX 1.25%

    jumped 2% premarket after it said profit more than doubled in the second quarter.

  • Las Vegas Sands


    LVS 3.43%

    said losses narrowed in the second quarter as revenue recovered from last year’s more restrictive measures to limit the spread of Covid-19, but market players are still taking their bets off the table. Its shares were down 2.5%.

  • Airbnb


    ABNB 2.32%

    shares are up 1.7% premarket. CEO

    Brian Chesky

    told Barrons that he sees the “travel rebound of the century,” even as Covid-19 cases jump.

  • Equifax


    EFX -0.60%

    raised its projections for the year as it sees broad-based revenue growth across all its segments. Market watchers greeted the news with a yawn: Shares were flat premarket.

  • Appliance maker

    Whirlpool


    WHR 1.91%

    lifted its guidance but said it will spend $1 billion more on raw materials this year as inflation hits corporate balance sheets. Its shares slipped 0.4%.

  • Intel,


    INTC 1.79%

    Twitter


    TWTR 2.36%

    and

    Snap


    SNAP 1.70%

    are set to report earnings after markets close. In Intel’s case, an earnings drop could be in the cards amid a global chip shortage.

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Stock Futures Rise Ahead of Earnings, Jobless Data | Sidnaz Blog

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U.S. stock futures ticked higher ahead of a flurry of earnings reports and jobless figures that are expected to reach a fresh pandemic low.

S&P 500 futures gained 0.2% and Dow Jones Industrial Average futures strengthened 0.2%. Changes in futures don’t necessarily predict moves after the opening bell.

European stocks climbed Thursday for a three-day winning streak. The Stoxx Europe 600 added 0.5% in morning trade. Energy and utilities sectors led gains while consumer staples and healthcare sectors lost ground.

Unilever

slipped 3.4% as it posted its fourth consecutive session of declines.

The U.K.’s FTSE 100 rose 0.1%. Other stock indexes in Europe also mostly climbed as France’s CAC 40 gained 0.5%, the U.K.’s FTSE 250 added 0.6% and Germany’s DAX rose 0.7%.

The Swiss franc and the British pound were up 0.1% and 0.3% respectively against the U.S. dollar and the euro was flat against the U.S. dollar, with 1 euro buying $1.18.

In commodities, international benchmark Brent crude fell 0.1% to $72.16 a barrel. Gold was flat, at $1,802.60 a troy ounce.

German 10-year bund yields were down to minus 0.399% and 10-year U.K. government debt known as gilts yields were down to 0.592%. The yield on 10-year U.S. Treasury fell to 1.270% from 1.279%. Yields move in the opposite direction from prices.

Indexes in Asia gained as Hong Kong’s Hang Seng climbed 1.6% and China’s benchmark Shanghai Composite rose 0.3%.

Traders gathered for the IPO of VTEX at the New York Stock Exchange on Wednesday.



Photo:

brendan mcdermid/Reuters

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Stock Futures Extend Recovery From Selloff | Sidnaz Blog

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U.S. stock futures ticked higher after a dramatic start to the week that saw a selloff on fears around the Delta variant of Covid-19 largely reverse itself as investors rushed back into equities.

Futures on the S&P 500 strengthened 0.3% and futures on the Dow Jones Industrial Average were up 0.4%. The contracts don’t necessarily predict market moves after the markets open.

In Europe, the Stoxx Europe 600 climbed 1.1% in morning trade with the energy and utilities sectors leading gains.

The U.K.’s FTSE 100 rose 1.2%. Other regional indexes in Europe mostly climbed as France’s CAC 40 gained 1.1% and the U.K.’s FTSE 250 added 0.6%, whereas Germany’s DAX added 0.5%.

The Swiss franc, the euro and the British pound fell 0.1%, 0.2% and 0.2% respectively against the U.S. dollar.

In commodities, Brent crude declined 0.4% to $69.08 a barrel. Gold remained flat, at $1,811.60 a troy ounce.

The yield on German 10-year bunds slipped to minus 0.415% and the 10-year U.K. government debt known as gilts yield was down to 0.551%. 10-year U.S. Treasury yields edged up to 1.211% from 1.208%. Bond prices and yields move in opposite directions.

Indexes in Asia were mixed as Japan’s Nikkei 225 index climbed 0.6% and China’s benchmark Shanghai Composite gained 0.7%, whereas Hong Kong’s Hang Seng was lower 0.6%.

Traders worked on the floor of the New York Stock Exchange on Tuesday.



Photo:

Richard Drew/Associated Press

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U.S. Stock Futures Tick Higher | Sidnaz Blog

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U.S. stock futures ticked up, suggesting Wall Street could stage a partial recovery after worries about the Delta variant of the coronavirus dragged major indexes lower.

S&P 500 futures gained 0.6% and Dow Jones Industrial Average futures strengthened 0.8%. Changes in equity futures don’t necessarily predict market moves after the opening bell.

European stocks climbed Tuesday after a four-session losing streak. The Stoxx Europe 600 added 1% in morning trade, led by gains in energy and utilities sectors.

BP jumped 2.1% snapping a losing streak of more than a week and SSE rose 2%.

The U.K.’s FTSE 100, which is dominated by large international businesses, climbed 1.1%. Other stock indexes in Europe also mostly climbed as France’s CAC 40 gained 1.2%, the U.K.’s FTSE 250 rose 0.7% and Germany’s DAX added 1%.

The euro and the British pound dropped 0.2% against the U.S. dollar whereas the Swiss franc was flat against the U.S. dollar, with 1 franc buying $1.09.

In commodities, international benchmark Brent crude was up 1.2% to $69.43 a barrel. Gold also gained 0.4% to $1,816.60 a troy ounce.

The German 10-year bund yield declined to minus 0.396% and the yield on 10-year U.K. government debt known as gilts was down to 0.553%. The yield on 10-year U.S. Treasury rose to 1.214% from 1.181%. Yields move in the opposite direction from prices.

Indexes in Asia mostly fell as Hong Kong’s Hang Seng lost 1.2%, Japan’s Nikkei 225 index was down 1%, and China’s benchmark Shanghai Composite shed 0.1% after falling by as much as 0.8% during the session.

A trader worked on the floor of the New York Stock Exchange on Monday.



Photo:

Richard Drew/Associated Press

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Oil Prices Slide on Fears Delta Variant Will Crunch Demand | Sidnaz Blog

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U.S. crude futures are more than 10% below last week’s multiyear peak, a drop that marks correction territory.



Photo:

Kyle Grillot/Bloomberg News

Oil prices slid Monday morning, heading for their biggest one-day drop in four months as investors worried that the spread of the Delta variant of coronavirus will halt travel and dent demand for fuel.

U.S. crude futures were recently down 6.4% at $66.98 a barrel, on track for their worst day since mid-March. Prices are now more than 10% below last week’s multiyear peak, a drop that marks correction territory. They are still up sharply for the year.

Traders in recent days have unwound some wagers that oil demand will continue to climb as more consumers get vaccinated and resume normal travel patterns. Hopes for a demand surge have buoyed oil throughout the year, but rapidly climbing coronavirus cases in some parts of the world are forcing investors to pare back their expectations for the economy. Some traders also remain wary of more travel shutdowns, which would have an outsize impact on oil prices.

“If we stagnate or retrace some of the demand increase we’ve seen thus far, the market will move from being undersupplied to oversupplied into the back half of the year,” said Rebecca Babin, a senior energy trader at CIBC Private Wealth, U.S.

Brent crude, the global gauge of oil prices, was recently down 5.7% at $69.41 a barrel.

Oil’s tumble came as stocks also fell on concerns about the economy. Investors on Monday sought shelter in ultrasafe government bonds, pushing down the yield on the benchmark 10-year U.S. Treasury note to around 1.2%. Yields fall as bond prices climb.

Energy traders also were weighing the news that large global suppliers are set to gradually raise output in the months ahead. The Organization of the Petroleum Exporting Countries and allies including Russia agreed to ease production curtailments in response to a recent demand recovery, though the Delta variant’s course could change the group’s plans.

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Nvidia Stock’s Surge Makes Chip Maker 10th-Biggest U.S. Listed | Sidnaz Blog

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Nvidia chips’ parallel-computing capabilities make them better than rivals’ for artificial-intelligence performance and mining cryptocurrencies.



Photo:

nvidia corp/Reuters

The post-pandemic boom in the semiconductor business has powered

Nvidia Corp.


NVDA -4.25%

into the top 10 U.S. public companies, joining the likes of Apple Inc. and JPMorgan Chase & Co.

Shares of the Santa Clara, Calif., firm have risen nearly 80% over the past year, giving it a market value of around $453 billion. That is more than rivals

Intel Corp.

and

Broadcom Inc.

combined.

Nvidia makes processors that power gaming and cryptocurrency mining. Chip shares have risen in part thanks to a pandemic-induced global shortage of semiconductors that has driven up the prices of everything from laptops to automobiles.

One reason for Nvidia’s outperformance, analysts say, is that its chips’ parallel-computing capabilities make them better than rivals’ for artificial-intelligence performance and mining cryptocurrencies. Nvidia’s graphics processors are used for mining ethereum and the cryptocurrency’s value has soared this year, even after a recent correction.

That surge has exacerbated the shortage of gaming chips. Nvidia plans to sell cards aimed at the crypto market and has employed technical adjustments to make gaming processors less useful to miners. Analysts also expect Nvidia to get a boost from tech and autonomous-vehicle companies using its chips to navigate traffic or track online behavior.

SHARE YOUR THOUGHTS

How do you think Nvidia will perform in the next year? Join the conversation below.

“The company is the biggest and best supplier of parallel computing,” said

Ambrish Srivastava,

analyst at BMO Capital Markets. “It’s hard to compete against that.”

While Nvidia has a leg up in the data-center industry, competitors are catching up, analysts said. The recent slide in crypto also could spur miners to dump their chips on the secondary market, as happened when a previous ethereum skid hit revenue in 2018.

A global chip shortage is affecting how quickly we can drive a car off the lot or buy a new laptop. WSJ visits a fabrication plant in Singapore to see the complex process of chip making and how one manufacturer is trying to overcome the shortage. Photo: Edwin Cheng for The Wall Street Journal

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Zoom Video, Five9, Exxon, IBM: What to Watch When the Stock | Sidnaz Blog

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Global stocks are broadly lower, along with government-bond yields and commodity prices, amid renewed anxiety around the Delta variant of Covid-19 and inflation. Here’s what we’re watching ahead of Monday’s open. Full market wrap here.

A sign for Zoom Video Communications ahead of the company’s Nasdaq IPO in New York, April 18, 2019.



Photo:

Mark Lennihan/Associated Press

Chart of the Day

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Moderna Jumps on Joining the S&P 500: What to Watch When the | Sidnaz Blog

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Stock futures are inching higher ahead of retail sales figures and a measure of consumer sentiment, that together will offer fresh clues on the vigor of American shoppers. Here’s what we’re watching ahead of Friday’s opening bell.

Medical professionals prepared syringes with doses of the Moderna Covid-19 vaccine at a mass vaccination event in Washington, D.C., April 3, 2021.



Photo:

michael reynolds/Shutterstock

  • Intel


    INTC -1.26%

    is exploring a deal to buy GlobalFoundries, according to people familiar with the matter, in a move that would rate as its largest acquisition ever. The semiconductor giant’s shares ticked up 0.9% premarket.

  • Chinese regulators slammed the brakes on

    Didi Global


    DIDI -2.06%

    ‘s shares, having on Friday entered the ride-hailing giant’s offices to conduct a cybersecurity investigation. U.S.-traded Didi shares were down 4.3% ahead of the bell.

  • American Outdoor Brands


    AOUT 5.99%

    reported a net profit for the recent quarter after a loss a year earlier, but investors seem less than impressed. Shares of the outdoor sporting and camping goods retailer dropped more than 9.6% off hours.

  • Alcoa


    AA -1.71%

    shares added 1.9% premarket after the aluminum producer topped second-quarter sales and income expectations as it benefited from strong demand and rising prices.

  • Kansas City Southern


    KSU 0.77%

    said revenue during the recent quarter got a boost from a strengthening Mexican peso. The railroad operator’s shares were up 1% premarket

  • Charles Schwab


    SCHW 0.50%

    is among the companies reporting earnings Friday.

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