Don’t Trust Your Broker
About two weeks ago, one of my brokers called and told me that it was time to get back in the market. I laughed at him. I reminded him that I got out of the market entirely in May 2008, and now that events have unfolded, I had little faith in our financial system. But he kept on pushing and pushing, and of course, we were going nowhere, because in my view the downsides far outweigh the upsides. Here are the top reasons why I will never listen to another stockbroker ever again.
Stockbrokers advise you when and what to buy not when to sell. That was what my broker was doing two weeks ago. He wanted me to buy again. That’s my issue, in all of my years of investing, I have never had a broker call me and tell me to sell. Never.
That’s what makes it sort of like a Ponzi scheme. As long as people keep on buying and the number of people that sell are minimized, life is great.
Actually, when I told the exact same broker to sell everything in August 2008, he told me that it was ridiculous. Had I listened to him, I would have lost right about 1/2.
All of the onus is on you to determine when to sell. And if you are serious about it, it is the high stress role in the relationship.
A stock brokers options are limited. On top of #1, the only thing that a stock broker can offer by and large are US equities and derivatives there of. What about commodities? They have no ability to hedge risk by getting into commodoties. Commodities such as oil, corn, live stock are all off the table.
But the list goes on. Precious metals. They have no clue if you want to abate your risk by stock piling some gold and silver.
How about currencies? No way. You are better off getting an on line account, because your broker has no idea what is going on with the EUR/USD.
Then last but not least are international equities. There are a few international mutual funds, but by and large, there is not a real good way to get into international equities either.
It’s like they can play one card from a six card deck, so they just keep playing the same card over and over.
They are not worried about your financial security. Because they only want to encourage you to buy, and never to sell, they are more interested in their own commissions. That is how they make their money. In fact, the premise of their entire compensation structure is to bring new money into the market.
When I told the broker how I invested a lot of money in Brazil in certificate of deposits, he pulled out every trick in the book to discount the success. His most significant argument is that I was taking too much risk. Huh? With a certificate of deposit, the risk is much less than the American stock market, and the returns are guaranteed. It just shows the inherent conflict of interest. His goal was not to improve my financial security, it was to sell something.
Now when I see all those financial commercials on golf tournaments, I don’t believe any of them. In fact, I think the exact opposite. They are more worried about their financial success than yours.