For the past 15 years, we have seen the longest bull run in stock market history, marked by periodic bumps, including the COVID-19 pandemic, none of which managed to derail its momentum. Tjhis was driven primarily by extraordinary monetary policies driving real interest rates below zero and expanding money supply, but there were other reasons, see: https://rockandturner.substack.com/p/the-4-of-companies-worth-holding
Money was so easy to make during this period, often referred to as the "everything bubble," that nearly everyone fancied themselves a financial expert with the Midas touch. In truth, even a monkey could have made money during this time.
This caused a huge increase in trading activity which was the wave which all of the brokerage businesses have enjoyed riding, including IBKR.
That period is largely behind us now. Valuations look stretched across asset classes which means that stagnation of valuations, or a downside correction, are more likely than a continuation higher. In such circumstances it is likely that people get burned and either lessen their trading activity or else withdraw from active investing and instead put their money to work in managed funds.
Modelling the future on a linear basis by looking at the past for these businesses ignores the pendulum effect that is far more likely.
PS - I use IBKR for most of my trading and I have found them to be best in class. The business model is great, the culture is superb, there is nothing wrong with the business. I am just calling out macro-economic factors that may impact all businesses in this space over the next 5-10 years.
Thank you for your detailed and considered comment. I agree with your everything bubble theory. However, IBKR do not just facilitate trading of stocks but bonds and all kinds of derivatives across a wide range of markets including many EMs. In the case of derivatives , trading volumes are determined by volatility rather than direction of the market. we live in financialised world and there is always a bull market in something somewhere. However, If trading volumes fall, IBKR will suffer. So far it has been a good call but all glory is fleeting!
There is another factor to consider:
For the past 15 years, we have seen the longest bull run in stock market history, marked by periodic bumps, including the COVID-19 pandemic, none of which managed to derail its momentum. Tjhis was driven primarily by extraordinary monetary policies driving real interest rates below zero and expanding money supply, but there were other reasons, see: https://rockandturner.substack.com/p/the-4-of-companies-worth-holding
Money was so easy to make during this period, often referred to as the "everything bubble," that nearly everyone fancied themselves a financial expert with the Midas touch. In truth, even a monkey could have made money during this time.
This caused a huge increase in trading activity which was the wave which all of the brokerage businesses have enjoyed riding, including IBKR.
That period is largely behind us now. Valuations look stretched across asset classes which means that stagnation of valuations, or a downside correction, are more likely than a continuation higher. In such circumstances it is likely that people get burned and either lessen their trading activity or else withdraw from active investing and instead put their money to work in managed funds.
Modelling the future on a linear basis by looking at the past for these businesses ignores the pendulum effect that is far more likely.
PS - I use IBKR for most of my trading and I have found them to be best in class. The business model is great, the culture is superb, there is nothing wrong with the business. I am just calling out macro-economic factors that may impact all businesses in this space over the next 5-10 years.
Thank you for your detailed and considered comment. I agree with your everything bubble theory. However, IBKR do not just facilitate trading of stocks but bonds and all kinds of derivatives across a wide range of markets including many EMs. In the case of derivatives , trading volumes are determined by volatility rather than direction of the market. we live in financialised world and there is always a bull market in something somewhere. However, If trading volumes fall, IBKR will suffer. So far it has been a good call but all glory is fleeting!