An article in the AFR yesterday about Stake’s intention to offer a $3 brokerage is bad news for SWF. Some of the previous competitors like superhero haven’t posed such a big threat as they seemed pretty gimmicky, targeting fractional shares, limit orders only and no HIN number.

Stake however are advertising proper trades with your own personal HIN for $3 which is super aggressive. In the article Stake are claiming it is not loss leading and perhaps they can break even with the intention of cross selling their other products to make money, but there’s no way I can see how Self Wealth can compete with this. SWF are currently paying open markets around $4 - 4.50 to execute their trades and they signed a new three year contract not that long ago.

Things are looking pretty ominous for SWF in my opinion.

I see Game Stop GME is back in vogue up 100%+ today (150% in the after market) Selfwealth's many new found millennial traders, will be lighting up the trades like a christmas tree. The recent update numbers around sign ups and trades was fantastic and the fatter margins will show up in the next 4c update early April.

It is looking like an absolute bargain here after pulling back significantly.

They say buy more of what you know. Well I have been buying more SWF. I am seeing tailwinds everywhere atm:

-Sign up spike from GME saga 

-Stake clients jumping ship after platform fails

-Fatter margins from Jan 1st

-Fatter margins on US trades from forex boost

-The Chart looks fantastic

-The much anticipated new app is due to launch any day now.

Seems a no brainer here, The buisness should be killing it right now.

SWF founder Andrew Ward announced this morning that he has sold down ~40% of his holding to institutional investors. As you would expect the market had a nervous reaction with clear selling pressure.

If I am in a small position or am trading a stock more on momentum and see a founder sell down, then with only that one piece of information, I too would be incline to consider wheter I want to keep the position.

SWF is a large position for me and as a result I am following it very closely, tracking all their metrics and reading everything posted about them. This seems to be one of the worst kept secrets getting around. 

Last week people on a variety of Stock forums were posting they had heard from brokers that Ward was selling. As you do when you read speculative posts from those you don’t know, you should either disregard it or take it with a large grain of salt and that is what I did. 

However, it turns out they were right. So now I am more interested in what they had to say. They were suggesting Ward was selling and the buyers were a small group of parties that included some of Aussies top small cap funds.

Andrew Ward ceased to be Managing director a few months ago. I see two likely scenarios here. He either stepped down of his own accord for personal reasons or he was forced to step down. In either of those two cases, I would expect him to want to divest some of his net wealth out of SWF shares given he will have less to do with the business. As a result, I am not that surprised by today’s announcement.

These founder selldowns are typically done at a discount to entice funds to participate. This one was not; it appears it was actually at a slight premium of ~56c. 

I have read posts on twitter this morning suggesting it is not a good look for him to sell straight after good news. The Open Market contract announcement last week was on the 24th, this founder sale was conducted before that on the 22nd. 

It is highly unlikely that a group of funds got their full fill from just a $4.5 million sale. Now this morning they are able to buy it at a cheaper price on market and on top of that, after an additional positive contact announcement has been made. So, I expect them to be soaking up shares here.

I am much less interested in today’s substantial holding notice and much more interested in the ones coming in the future to see exactly which funds have been buying. I am sitting tight through this selling pressure this morning and If the share price fell too far below that 0.56 sale price, I would consider picking up some more.

To all those who were saying SWF will get hurt when Robin Hood come to Australia and undercut them. Robinhood just pulled out of their long planned UK launch indefinitely and have put all global expansion plans on hold to focus solely on US markets.

A rather bullish development for Selfwealth.


 

An update on Robinhood UK

Hi there,

We’re saddened to share that we’ve made the difficult decision to postpone our UK launch indefinitely. We'll be closing our waitlist and taking down our UK website shortly. 

The world has changed a lot over the past several months and we’re adapting with it. On a company level, we’ve come to recognise that our efforts are currently best spent on strengthening our core business in the US and making further investments in our foundational systems. 

Since we announced our intent to launch in the UK, we’ve been fueled by your excitement for Robinhood and humbled by your response. We’re sorry that we cannot deliver the product we promised you this year. 

Although our global expansion plans are on hold for now, we will continue our work to democratise finance for all and we look forward to the day when we can bring this mission to the UK. 

Sincerely,
The Robinhood UK Team 

So after a short period where volume dropped off and we were treading water, Volume was back today and the Share price took off +16.5%.

Observing the order flow today and this was real buying, Offers were being chewed up all day at 38c and then closed on the high of the day at 39c. This was the footprint of a fund buying or at worst a very serious individual.

This is looking great here and thats with a bumper report still to come!

SelfWealth is by far the biggest position in my personal portfolio. It was also the first trade I put on Strawman where I allocated the maximum. I decided to trim it back on here because I have been tweeting to death about it non-stop for months and people are probably sick of hearing about it. That being said, here is why SWF is still my best and highest conviction idea.

SWF experienced a sudden spike in growth in Jan/Feb which had been made public via The ASX, They raised money at 0.14 and were trading at 0.16. Then when Covid panic hit, the shares were sold off hard along with everything else. But they shouldn’t have been. Over 50% of SWF gross revenue comes from trade volumes. The ASX volume had exploded as people panic sold all their positions in March. Those that sold their positions also left a large portion of the funds from those sales sitting in their Selfwealth cash accounts. The net interest margin on those cash accounts is the other main component of SWF revenue.

It was the perfect storm, a spike in growth combined with a huge surge in trade volumes and cash accounts. I was buying heavily at 0.10 and accumulated a position far beyond my rule/guideline for maximum position size, as was my conviction.

With SWF now trading closer to 30c it is a different proposition, but not necessarily a less attractive one. SWF now finds itself much less under the radar than a few months ago (For example it is now in the top 20 on Strawman) it has attracted recent buying from Funds and liquidity is picking up. 

At this point in time in would be naïve and arrogant of me to assume that I know more that all the current buyers and sellers combined and that I can do a better job determining what the price should be. In fact, I think it is mistake to try and precisely value any company experiencing this sort of rapid growth. With improved liquidity and interest the market price should be given much more weight now and treated as a more reliable benchmark. 

At this juncture I am instead using a different method to determine whether I think it is good value here. It is a method that I used very successfully when sports betting into liquid markets. That is, take the current market price as your most accurate base assumption, then handicap that price based on specific pockets of information that you believe the market is misunderstanding. 

There is currently a narrative among many, that the last quarter was just a Covid related spike and that things are now normalising. It is true that ASX volumes have returned to more normal levels, but what hasn’t slowed down is SelfWealth new clients signing up. Trade volumes are in a large part a derivative of the total client numbers.

I am currently tracking many metrics and data points that suggest growth in new traders this quarter will be huge. I assume the funds trying to get set around this 30c level are not silly and will also be expecting solid growth, but I think they are underestimating just how much. I think the next 4c will blow the expectations away of those currently paying 30c and that those same people will be happy to pay much higher prices.

The Longer-Term Outlook: 

 There are a couple of interesting self-fulfilling prophecies playing out positively for SWF at the moment.

1.     SWF is in a unique position where it almost doesnt matter what the market does from here. If we contiue this melt up in markets Then the SWF share price will continue to get dragged higher like every other stock. If we experience another wave of covid or a different shock that causes a spike in volatility like in March, then trade volumes would increase again and Selfwealth would begin making even more money.

2.     I  recently took a look at the broke data for SWF and found the number one buyer was Open markets (who execute Selfwealth orders). In other words, Selfwealth customers are buying SWF shares. Your first thought may be “great” retail buying is a negative sign. On the contrary. We already know that funds are trying to get set. They are beginning to pop up on the register and if you follow the orderbook flow you would notice some of the ~300k line wipes in recent times, which is a sure foot print of big buyers. 

But Selfwealth customers buying the stock is a phenomenon that adds fuel to this fire. You have a company that is currently growing new users at an insane rate of 50%+ every 3 months. Not only are these new users blowing up the company's revenues, but with every new customer you now have a potentially new and likely buyer of the stock. 

3.     Momentum and trend traders are a very different breed to your typical investor. They are not interested in the fundamentals of the company rather just the direction of the share price and that the volume backs it up. But SWF has had a big run, wouldn’t momentum traders be in there already? Sure, some would be, but the SWF run up happened quickly in just a few months, so it would not be on everyone’s radar yet. Also, the company market cap and liquidity were low which would have discouraged many.

The main point to make however is that unlike many investors, momentum traders do not suffer from an anchoring bias. They don’t care that the price is higher than where they could have once bought it, in fact they relish that as a good sign and a buy signal.

Funds, retail buyers and SelfWealth customers will continue to buy, putting a floor under the price, while momentum traders will continue to flock to the stock as it pushes higher. 

4.     A common theme that seems to be of concern to many is that a big player with deep pockets will come in and start a price war with SelfWealth. Perhaps someone that can afford to run a trading platform at a loss in order to leverage other more profitable financial products to clients. In my experience these types of companies don’t really want to get their hands dirty. They are unlikely to go to all the effort to try and wrestle market share from Selfwealth. This could take years and a much more attractive option would be to just make a take-over bid and begin leveraging their other products immediately.

In other words Selfwealth is on route to becoming a very tasty takeover proposition.