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Serious Individual Investors Outperform Stock Brokers

By Chris Rowe November 15, 2006 Facebook Logo Twitter Logo Email Logo LinkedIn Logo

Attention Stock Brokers!  Attention Stock Brokers!  Your clients have one foot out the door and the other on a banana peel! 

If you're out on the golf course, or if you're having the three-martini lunch right now, your client may be "ACATing" out!  The individual investors reading this probably know that means "transferring" an account from one brokerage firm to the next, which is kind of like having to end a relationship with a clingy lover.  They will call you and make all of the promises in the world, and you tell them it's too late for that, or maybe you give it another chance thinking that they know you're seriously willing to leave unless they shape up. 

When I talk to the stockbroker group of friends that I have, they are all saying the same things: "You newsletter guys gotta let up on us, man!"  One of the brokers that I like to verbally abuse when he calls me even said "Why do you have to beat up on the little guy?" 

Imagine that.  The stock broker calling himself the "little guy" because of us publishers.  Now THAT'S a trip.  The newsletter industry is growing in leaps and bounds as the number of world-wide internet users is still growing at an alarming rate.  Remember when the average Joe was first becoming hip to the internet in the late 90s?  It was a magnification of human nature looking for the quick fix as people found a way to side-step the full service (full commission) stock broker and trade online for $10.00/trade.

Some investors were legitimately sick of their account practically being held hostage by some overcharging, hard to get in touch with broker who they didn't even respect, and others simply didn't care about the relationship or understand the protection that their assets were given (assuming that the broker was actually a good one,) but they just wanted to "save money" on commissions.

When I was managing money, a euphoric client would say, "Why should I use a full service broker when I can trade online for $10.00?"  My answer was always something to the effect of, "If you needed to have surgery, why use a surgeon when you can buy a scalpel for $10.00?"  Or I think the other one was, "I can do my own taxes for free but my accountant saved me $40,000.00 this year and charged $1,000.00."

I thought I was clever back then, but the point was that most individual investors who started trading online decided to go to the medical supply place to buy the $10.00 scalpel and perform surgery on themselves, and actually forgot that the surgeon went to school for just a little bit of time, and studied medicine slightly more than they did.  Most investors found out that it wasn't as easy as buying the scalpel.

That was then, and this is now.  The internet, while this is "just the beginning," is out of the infancy stage, and the "information age" has really made a portion of the human race much more intelligent.  You may not even realize just how fast you have expanded your knowledge now that you have access to all of this information.  Of course, there was always info in the books, but when access to info is as easy as typing in a couple of keywords and hitting the search button, expanding your knowledge in your very specific fields of interest is ultra easy to do.  Now you actually can easily find out online how to perform surgeries yourself.  (Don't try this at home, kids.) 

Of course, just as the full service brokers took advantage of the fact that it was hard, even intimidating, for individuals to trade on their own, the discount brokers took advantage of individual investors as people gained access to $10.00 trades.  They didn't care about research or trading education because they didn't seem to need it in 1999/2000.  Then, after getting slapped around by the market with online surgery -- oh, um I mean, trading, and individual investors got to see the New York State Attorney General Elliot Spitzer expose all of the scams that the world's biggest banks and brokers were pulling, they looked for research from independent sources on the web . . . like newsletters.

That's when many of you were taken advantage of by the guys in MY industry.  (Unfortunately, whenever there is an opening, whenever you get out of a bad relationship, there will always be someone waiting with open arms who sees you coming from a mile away.) 

Anyway,  forget about the obvious scams  where you get unsolicited  e-mails  telling you that is at $0.25 and about to go to $3.40 (can you believe people still fall for that?)  But all of these big (now considered "reputable") newsletter publishers popped up, advertising the "gurus" that you should pay for investment recommendations.

The only problem is that 80% of these "gurus" don't have real life Wall St. backgrounds!  Most were (and still are) editors, or customer service type guys who happen to be personable.  Not that customer service folks have a lower mental capacity, but I'd rather let the surgeons advise me on the surgery.

Anyway, my smaller point is that there are no short-cuts, but now you have all of the "learning material" at your fingertips as opposed to just having the tools to perform the operation.  And, just as there are hard working, sophisticated stock brokers out there with Wall Street contacts who are real money controllers, and that do in fact care about your account, who aren't there to rob you, there are also a few real guys on the web.

My bigger point is that if you are one of the brokers who read this publication (and as a founder, I know there are several thousand of you) you had better be the one who is constantly reading, constantly looking for the best  investment strategy and the best way to treat your client.  Individuals are not only able to side step the commission, but the ones who are willing to spend some time and energy, can learn more than the majority of the stock brokers out there.

As a matter of fact, some of the biggest and some of the smartest brokers that I know are newsletter subscribers. 

That's all for this week.  Be careful, everyone; it's a jungle out there.