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AMTD TD IN ADVANCED TALKS!

AMTD has tried to buy TD Waterhouse for a couple of years. TD has wants to expand but wants to run the show. ET made an offer for AMTD but AMTD wants to run the show. As owners of AMTD and ET, my family is eager to see consolidation provided AMTD does not pay too much for TD Waterhouse.

AMTD did a marvelous job of integrating its past take-over targets. AMTD retained most of the customers and consolidated back office operations smoothly. A lot of investors total misunderstand the costs of "electronic service businesses". A successful businessman said to a group the other day that he couldn't see how cell phone companies make money when the give away $200 phones. I don't know the exact numbers but I figure that after the equipment is in place, it cost about $.50 per month to provide cell phone service that is billed at $35 per month. It probably cost far more to bill and collect the $35 revenue than it does to provide the service. In other words, the entire business is about amortizing the equipment costs which includes everything from towers to hand sets.

There are brokerage firms that offer "free" transactions to large accounts. My family trades mostly with BrownCo. We pay $5 to buy or sell stock. We know that $2 of the trade goes to pay the exchange fee. If BrownCo can turn a profit at $5 per trade, then AMTD can certainly do well when charging $10.50 per trade. It was a big deal when Schwab lowered its "discount" commissions to the same range as AMTD and ET. The good news for the companies is that as a group they are playing a good game of "tit for tat". This means that no one has been willing to offer services at a loss to out-grow their competition.

One of the biggest mistakes made in business is to charge too little. New owners of businesses often fall into the trap of offering "specials" at below costs to attract business. They often attract business that they don't want in the first place and business that is "hot". The guys that came as the result of low price are constantly looking for a lower price elsewhere.

Give me the customer that wants my product for a fair price. I will take care of him and he will take care of me. As long as I provide a good product or service, he will be loyal. He will not spend half his life looking for the best deal and I will not abuse his trust by over-charging.

After AMTD has opened an account, the cost of executing a trade electronically is about the same as the cost for Google to post this blog for me. The acquisition cost to acquire the account is much different. Google offers the service for free and does not need to advertise or promote the service. AMTD, ET, TD and Schwab all spend large sums advertising. The game now is about marginal revenues versus marginal costs. The established systems can handle more business for next to nothing more in costs. Adding TD customers to the AMTD platform would involve effort to move accounts from one system to the other or to convert the old system to the new system. After the moving costs are amortized, a very large proportion of the new revenues will go to the bottom line.

THERE IS A BIG BULL STAMPEDING! INTEREST RATES IN EUROPE ARE COMING DOWN! IN 1984 AND IN 1994, WHEN THE FED STOPPED RAISING SHORT RATES, THE MARKET TOOK OFF! GO BULL GO!