Editor's note: Monday in Reston, Va., Jim Cramer spoke at the Friedman Billings Ramsey fourth annual Technology Investor Conference. We'll be running the text of the speech in four parts over four days. The second installment follows. Get up to speed with the first installment.
Individuals, particularly those in the expanding baby boom-retiree segment, are fed up with their old-line brokerages and, lately, even with their high-charging mutual funds. They no longer doubt the adage that they can do it better themselves -- and for much less money.
A typical investor in this group sees the brokerage houses of today as expensive plumbers, carpenters and craftsmen -- only now he's been to
and he knows that if he can do plumbing and electricity, he can do stocks and bonds -- cheaper and better than the pros. He watches commercials every day that show ridiculous, pathetic brokers who know nothing, dialing for dollars, getting hung up on by people they are bothering. The client has learned that these people don't make you any money and charge you a lot. Heck, the online brokerages have told him that. They must know, they are in the same business, he figures. They just charge less -- like Home Depot to the local hardware gouger.
He has learned that the whole offline brokerage industry is against the revolution and wants him to hate what he loves, the online brokerage.
have combined to make the brokerage industry look like it is one giant rip-off of the public. In just a few short years! It took much longer to realize that you could renovate your own home with the help of Home Depot than it did to teach you that you could renovate your finances with a
But that's not the half of it. The public has also come to mistrust the research departments. Here,
and a lot of upstarts such as
have been the culprits. They have characterized research analysts as mindless penguins jumping into the water -- at best! -- and as multimillion-dollar prostitutes serving at the behest of their corporate finance departments at worst.
The public has learned that research departments never make you money, never issue sells and can't be trusted because they are shills.
tell them that every day, how can it not be true? If it weren't true, wouldn't
have pulled these guys already?
And why believe otherwise? The only way the old-line guys can really make any money, given the reduced commissions, is through underwritings. And the only way to get an underwriting is to insure that you will have research coverage. Only those very, very few analysts with a streak of independence at the very best houses can stand up to corporate finance. And eventually they get worn down and go to the buy side, where the riches are greater and the consciences much more intact.
Research has gone from a trusted product to a corrupt one, without the pizazz of the
World Wrestling Federation
but often just as phony. These highly paid departments are highly overpaid by every standard except when they can be independent -- precisely what the more powerful and highly remunerated corporate finance departments don't want them to be.
What a terrible time for this wonderful transformation to happen for the off-liners! The public has never been as interested in the game as it is now. People trained to lose millions of dollars in lotteries by the state and in cards by the casinos are winning in the stock market by going online. And what do they get online? It turns out that they get virtually everything that used to be the province of only the wealthiest, most-informed clients.
They get filings, growing graphs, charts, real-time quotes, bonds, analysis. In our case, for 10 bucks a month! Or one trade a month. Now, the online product is better than the highly paid off-line product.
I would stack the professional version of
six months from now against any of the $1,500-a-month offerings from
and I doubt we will have to charge more than $25 a month for the product. And I would say that ours will be more indispensable than anything Mike Bloomberg or the Brits can provide.
Look for Part 3 later today.
James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund had no positions in any stocks mentioned. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at