Sunday, October 7, 2007

Why Brokers Can't Tell You The Truth

Your broker is not a crook. He works for a company that will not allow him to do a good and honest job for you. Furthermore, if he tries to learn how to do it he is discouraged and if he actually does it he will probably be fired.

Pretty harsh words, but Ill prove it. Of course, your broker must deny it. Wall Street wants your money. They want to keep it. They want you to buy something, anything, and never sell. That is the Buy and Hold doctrine that is preached as the right way to invest.

This is the biggest lie of all. Go back in history of the stock market as far as you want and during any 10-year period there will be a bear market loss of from 20% to 40% or more. Any half-way intelligent broker can learn how to sell near (I did not say at) the top of the market and buy back in near (same caveat) the bottom.

Brokerage companies prefer you stay fully invested while your account shrinks rather than sell to be in cash to preserve your capital. Even if you dont make any trades they make about 1% each year. That may not sound like much, but multiply it by several hundred billion (thats a B). Mutual funds skim your account 2% each year. That is why ETFs (exchange traded funds) with their minuscule management fee are slowly strangling the mutual fund industry. The branch manager of most brokerage companies is paid his bonus based on the amount of invested funds. Money markets dont count can figure that out.

Brokers are not taught an exit strategy. The very simple method of stop loss protection for a customers account is discouraged. During the 2000-2003 bear market when the NASDAQ dropped 78% and the S&P was down 40% brokers did not know what to do and were told to HOLD. They really didnt know. Few of their company analysts also did not know and let clients lose half their money or more.

Brokers and customers were continually told, Never try to time the market. It is easy to do, but not told to brokers or financial planners.

Occasionally there will be an independent broker who will leave the shelter of his big brother brokerage company that is Wall Street dominated and go out on his own. They work from a small office or their home. They usually manage customers accounts on a fee basis and hardly ever lose a customer because they know how to protect client money.

Ask a broker or financial planner if they have an exit strategy. Then get them to put it in writing on company letterhead. (Bet he wont.) During the next bear market, and there will be one, remind him not to lose your money and to follow the plan he previously wrote. It is the investors money. He must be sure he is being protected and not lied to.

Al Thomas' best selling book, "If It Doesn't Go Up, Don't Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter and receive his market letter at and discover why he's the man that Wall Street does not want you to know. Copyright 2007 All rights reserved