The Bi-Polar Battle

If you subscribe to the theory that consumers and market actors are both rational at times, and irrational at other times, the market’s wild, sometimes befuddling moves become easier to accept. We’re dealing with a complex, bi-polar system! As Mark Twain said, “When we remember we are all mad, the mysteries disappear and life stands explained.”

So today let’s compare two financial companies – Ameriprise Financial and Interactive Brokers.

The former is a conservative, financial planning brokerage. Clients of Ameriprise engage in many of the family planning exercises that Rodney alludes to above – forecasting future expenses, building a safety net of insurance and savings, and generally plotting out a realistic course toward everyone’s ultimate goal of outliving our last dollar.

Interactive Brokers, on the other hand, is an online discount brokerage. It simply caters to a different client… mostly “active” traders and many day traders. Its register rings when traders are firing orders in.

Ameriprise represents our rational half – the part that tries to make the best decision. Interactive Brokers represents the threads of “irrational exuberance” that weave their way through each of us, and therefore the markets.

With that in mind, look at this chart below. It shows the relative performance of each company since the 2009 bottom.

See larger image

Looks to me like a decade of tumultuous markets is enough to bring many people back to the basics… to the rational, financial planning activities that companies like Ameriprise offers.

However, financials are currently a lagging sector, so I don’t recommend buying stock of either Ameriprise or Interactive Brokers just yet. But I do like both stocks…

Interactive Brokers looks cheap and a good place to be when the irrationally exuberant “risk on” trade returnrns. Ameriprise will enjoy record demand from Baby Boomers coming late to retirement planning.

I’ll keep an eye on both stocks and wait for the right opportunity.