Oh, Writser, to your question.
"Again, I would be quite interested in hearing anyone's opinion on a IBKR / ETFC pair trade. Seems like a decent idea at first glance."The problem for me with this pair trade is that it's pretty dirty. I think you have a lot of basis risk because IB succeeds and fails in different ways than other brokers. Long term, I think it's an interesting bet, and both should have similar macro themes which they will correlate with (say, rising rates are good for both), but for example if we have a retail driven stock bubble, I would think ETFC would do well, and IB, maybe just ok... The most difficult part of this kind of pair trade is that I think ETFC / SCWH etc are in good businesses, so if all goes well, IBKR goes up 12-15%, and ETFC goes up 6-10%... basically, the gross size of this position will start to suck regardless eventually, right? But maybe you just reduce the position in the next down market? (just talking about loud).
But, I do hear you on wanting to participate in the goodness of IBKR, but not knowing how / wanting to swallow the valuation. I've owned for a long time, and the position is too big, and I have begun paring it back. I don't have a good answer, but I still like the company, and think they have a clear competitive advantage that will lead to high incremental ROIC, so I don't want to lighten up too much due to valuation alone.
The other thing about IB alluded to above, which is nearly completely left out of this discussion is that their story in the US is IMO quite amazing, but it looks like a sick dog compared to the story they have in the rest of the world. In Asia and Europe, IB is like SCHW was in the US in 1992... it's just comical to see the "competition" they are up against. Eventually, the world will get more in gear like Fidelity, but Fidelity in the US vs. Fidelity for a resident of Spain is a totally different bag (just as an example); I think IB has a huge runway.
I think this also addresses (kind of?) the note above by KC about how big IBKR can get, and comparing to SCHW... SCHW is primarily US domiciled investors only (last I checked), I think IB's runway overseas makes the comparison not as directly relevant.