Jason Zweig once said: “I put two children through Harvard by trading options. Unfortunately, they were my broker’s children.” Today, we’ll look at the broker I use: Interactive Brokers Group Inc. (IBKR), advises Pieter Slegers, editor of Compounding Quality.
I use a 15-step approach to analyze stocks. Among them:
1. Do I understand the business model? Interactive Brokers is an American online broker with over 2.6 million client accounts. The company lets investors buy and sell almost any asset through its electronic platforms. It offers products from over 150 exchanges.
Interactive Brokers Group Inc. (IBKR)
The company makes money in two ways: Interest income (60.5%): The interest income is earned on the cash reserves of around $100 billion that clients hold in their accounts. Non-interest income (39.5%): All commissions and fees clients pay for using the brokerage platform.
2. Is management capable? Thomas Peterffy founded the company in 1977. He arrived in the United States as a Hungarian migrant in 1965. It’s great seeing Peterffy is still the Chairman. Only 25.8% of the company is publicly held. The remainder is owned by IBG Holdings LLC, which is 91.4% owned by Thomas Peterffy and his affiliates. This means we’re talking about an Owner-Operator Stock.
3. Does the company have a sustainable competitive advantage? Interactive Brokers has a wide moat based on cost advantages. The company has an extreme focus on efficiency, technology, and automation. This leads to profit margins far exceeding those of competitors. They also have something in common with Amazon that few other businesses have: An extreme customer focus.
Bringing everything together, Interactive Brokers gets a Total Quality Score of 7.9/10.
