Over the last six months or so, trading volume has been much higher than historical averages. Investors are uneasy, and they are moving their money around – in and out of sectors and/or changing asset allocations.
There is one group of companies that benefits from this.
Yesterday, I was speaking with a friend of mine who works within the financial industry, on the advertising side of the business. And something Tom said hit home with me: With companies cutting back on advertising, parts of his business are down – but online brokers are going strong.
Online brokers get commissions whether investors are buying or selling – and given the volatility in the market, we know there is a lot of buying and selling going on.
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The two online brokers that jump out at me are TD Ameritrade (AMTD) and Charles Schwab (SCHW). Their stocks have dropped with all the other brokerage firms, but it is a case of guilt by association. These two companies don’t have exposure to the mortgage market and they aren’t involved in proprietary trading, so they aren’t looking at the losses the big full-service brokers are being hit with.
AMTD and SCHW should do well when the market settles down and starts heading higher. In the interim, they are still getting those commissions as investors move in and out of the market. Adding either of these two companies to your long-term portfolio should pay off.