Arrow-right Camera
The Spokesman-Review Newspaper
Spokane, Washington  Est. May 19, 1883

Motley Fool: Down with great potential

SoFi’s ramp-up in consumer banking is even more impressive when you consider that the company has had a banking charter for less than a year.  (Courtesy of SoFi Technologies)

The concept of online banking has been around for a few decades now, but SoFi Technologies (Nasdaq: SOFI) is going about it a little differently. Instead of offering an attractive niche product (like a high-yield savings account), SoFi’s goal is to offer everything its customers need and get them to abandon their current banks altogether. As if that wasn’t ambitious enough, SoFi also owns the Galileo “fintech” (financial technology) platform; emulating Amazon Web Services, SoFi has said it wants to “build the AWS of fintech.”

Recent results certainly have been impressive. SoFi has grown its membership base by 450% over the past three years to over 4.7 million, and it has done a great job of increasing adoption of its checking, savings and credit card offerings. This should help create a natural marketing funnel for its high-profit lending products. Galileo has grown by leaps and bounds as well; it recently had 124 million customer accounts on its platform, about 39% more than just a year ago.

SoFi’s ramp-up in consumer banking is even more impressive when you consider that the company has had a banking charter for less than a year. With its tremendous growth momentum, SoFi could potentially grow to many times its current $5 billion market value over time. That’s far from guaranteed, but for risk-tolerant long-term investors, this company is worth a closer look.

Ask the Fool

Q. If trading is halted for a stock, what does that mean? – O.P., Charleston, South Carolina

A. Trading can be halted or delayed for several reasons. For example, there may be some headline news pending, such as an announcement about a merger or restructuring, a big change in management, a major legal development or significant good or bad news regarding the company’s products. The halt – typically less than an hour, but sometimes longer – can give investors time to digest the news before making any buy, sell or hold decisions. The market may also delay trading in a stock if there’s a considerable imbalance between buy and sell orders for it.

Trading may also be halted if it looks like the company may no longer qualify to be listed on the exchange (perhaps its stock price has fallen to a certain level). And trading may be suspended for days if it appears that a stock is being manipulated.

Q. If I own, say, 1% of a company’s stock, and it earns $100 million in a quarter, do I get 1% of that, or $1 million? – B.L., Santa Rosa, California

A. Not exactly. Shareholders are indeed part owners of companies, but they don’t get a direct share of their earnings. Instead, they benefit from owning a stock because as the company grows in value (because of increasing sales and earnings), the stock price also tends to grow in value – as investors will be willing to pay more for shares.

Shareholders are rewarded directly when dividend-paying companies send them a portion of earnings on a regular basis. They can also benefit when companies repurchase shares, as that reduces the share count, making each remaining share more valuable.

My smartest investment

When it comes to financial decisions, the smartest thing I ever did was to stop trading and to start investing. – F.H., online

The Fool responds: That’s a critical distinction to make because investing is more likely to help you build wealth than trading is. Stock trading is often focused on the short term, as traders aim to make a quick buck over a few months or even a few hours. Often, they know little about what they just invested in, except that it looks like it may deliver a gain. Traders often try to time the market, and they like to chase “momentum stocks.” They hope to outperform long-term investors, but they frequently underperform them.

Investors, on the other hand, tend to have long-term views. Many buy into stocks aiming to hang on for years, if not decades. They think of themselves as part owners (as they are) of the companies in which they hold stock. They know the companies fairly well, too, having researched them before investing; they have a good grasp of those companies’ strengths, competitive advantages, risks and challenges. They hang on through the market’s ups and downs, understanding that volatility is part of stock investing. Over many years, if they’ve chosen solid stocks (or low-fee index funds), they tend to be well rewarded.