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Bull of the Day: Virtu Financial (VIRT)

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It’s a challenge to pick the Zacks “Bull of the Day” right after one of the worst days in the history of the stock market.

Except that this is exactly the time when smart investors have to ignore the noise, dig deep and do the uncomfortable job of figuring out which companies are going to thrive on what’s happening.

Virtu Financial (VIRT - Free Report) was founded by Vincent Viola, former chairman of the New York Mercantile Exchange. The trading pits are a place in which good traders are forged – and bad ones go broke quickly. The ones who rise to the chairman position are the best of the best.

Now take Viola and combine him with an arbitrage trader from Goldman Sachs (GS - Free Report) – David Salomon – and the financial support of one of the most influential private equity firms in Silicon Valley, Silver Lake Partners.

Then put them on more than 200 financial exchanges around the globe.

They’re a juggernaut.

Have you ever heard hard-luck traders and investors decry the presence of “High Frequency Traders” as if there’s something wrong with the concept?

Well that’s only because the HFT guys took all the profits.

How would you like to own shares of one of the best HFT shops in the business? 

You can.

Even in normal times, the really good market-making firms like Virtu make at least a little money every day. In the S-1 they filed with the SEC prior to selling shares in 2014, it was disclosed that the firm had only lost money on one single trading day during the prior three and a half years.

Yes, you read that correctly – and it’s even more impressive than it might sound. It’s because they make a tiny sum on an enormous amount of trades, and when they lose, they lose a little less than what they make when they win.

Then they keep doing it over and over.

In markets like these, instead of making those small but predictable profits, firms like Virtu use their considerable expertise to collect bid-ask spreads at a huge multiple of the normal width.

For the past month, as the S&P 500 has been getting brutalized by virus fears, Virtu shares have been rallying. In fact, they’re still up more than 30% in 2020. A recent pullback means those shares are a great deal right now.

Investors who are selling shares of cruise lines are probably correct. There are serious problems in that industry.

Anyone who’s selling Virtu during this period has no idea what they’re doing. We won’t know for sure until the next quarterly report, but there’s a decent chance they just had several of the best trading profit days in their existence.

Viola acknowledged recently that it’s going to be a “bumpy ride” but that he and his firm are well positioned to take advantage of the panic that’s making many others lose their minds.

You want to be on that team, right?

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