By Haddon Libby

On Monday April 18th, the Charles Schwab Company reported that it missed its revenue and earnings estimates for the first quarter of 2022 by 10%.  Results caused the stock to lose 10% of its value that day.  This underperformance was an acceleration of trends seen during the 4th quarter when the company missed by 2.3%.

The key item causing underperformance was a 21% decline in trading income from this time last year.  If you remember, one year ago the market was when meme stocks like GameStop and AMC saw prices spike dramatically higher as investors put a squeeze on short sellers.

(If you did not understand the last paragraph, read this: Short sellers are investors who sell a stock that they do not own.  Where you and I pay money for a stock, the short seller borrows the shares from the securities firm with the promise to repay the firm by buying those shares at a future date.  Squeezing a short seller happens when the people who shorted the stock have to post more cash/securities or buy the stock in order to close out their open position.  Meme stocks were companies like GameStop and AMC where short sellers had sold more than the shares outstanding as they expected these companies to go bankrupt.  In a surprise, small investors came together and squeezed the shorts so hard that both companies were able to raise enough money to save the companies from bankruptcy.  GameStop and AMC are two examples of meme stocks where investor enthusiasm trumps the logical and reasonable price that the stock should sell at.)

The poor performance of Schwab was in contrast with Goldman Sachs and Morgan Stanley who both saw profits grow by 4%.

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The decline is volumes at Schwab is being blamed on customers added during the pandemic who were younger and traded more frequently.  Now that the market does not go up day after day as was the case at the end of 2020 and start of 2021, things like stock valuation matter.  Less experienced day traders have pulled back.  Additionally, many people who were still working from home at the start of 2021 are now back to working away from home and unable to trade actively as was the case last year.

If you are not trading your account as you once did, it might make sense to review your holdings.

If you have a position that is down 50% or more, ask yourself what will cause the stock to move significantly higher in value from here?   If you are unsure, there are numerous places where you can read up on the positions you hold.  The firm that holds your investments should have a research page where you can read up on the stocks you hold and get analyst opinions on the reasoning behind their price targets.  Morningstar is an independent market research firm that many securities firms use for research.  Others use Thomson/Reuters or CFRA.  MarketWatch, Yahoo! Finance or Google Finance are solid free choices as well.

When reviewing your current holdings, make sure that you have a diversified mix of assets.  Technology stocks represent about one-quarter of all value in the US equity markets.  Try not to have a portfolio that is too overly weighted toward that business sector.

As another example, energy stocks are hot right now and represent 4% of all value in US equity markets.  If your energy holdings top 10%, recognize that you are betting on that sector more than other business sectors.  Have some healthcare, consumer and industrial stocks.  Maybe an utility or a financial.

As 75% of all equities are large cap companies that are represented by about 500 stocks, try and keep from keeping too much in mid or small sized stocks.

If you trade in penny stocks (those under $5/share) or Pink Sheets, assume that your chance of success is probably a bit lower than the BlackJack table at the Casino.

If you have questions, please feel free to contact me at Hlibby@WinslowDrake.com.  For more information on our Award-Winning investment services, please visit www.WinslowDrake.com