In the article Goldberg mentions:
“I should have seen the signs of
dysfunction much earlier.
It was more than a decade ago that our
first Merrill Lynch adviser put us in a company called Boston
Chicken. A Merrill analyst described it as “the restaurant concept
of the ’90s.” It went bankrupt in 1998.
Only later did I learn that Merrill had
underwritten the initial public offering for Boston Chicken stock,
and so had an interest in selling the company to its customers.
There were other brilliant pieces of
advice—long-term “buy and hold” recommendations that emerged
from the Merrill analysis factory: Qualcomm; Sun Microsystems; Nokia;
and Citibank, of course, which has recently dipped as low as a dollar
a share. The full-service trading fees at Merrill—$80, $100, $130,
for modest chunks of stock—were high, but we were told that we were
paying a premium for quality research.”
In an interview Goldberg had with George Soros the billionaire hedgefund manager he said:
“You think a brokerage should be a place you go to pay
commissions for fair and unbiased advice, right?” he asked.
“Yes,” I said.
“It’s not. It never has been.” He then cited another saying
of Buffett’s: “‘Wall Street is a place where whatever can be
sold will be sold.’ You are the consumer of their dreck. What they
can sell to you, they will sell to you.”
A comment by Seth Klarman, a value
investor with an outstanding track record, summed up the point of
this article with this quote:
“The average person can’t really trust anybody. They can’t
trust a broker, because the broker is interested in churning
commissions. They can’t trust a mutual fund, because the mutual
fund is interested in gathering a lot of assets and keeping them. And
now it’s even worse because even the most sophisticated people have
no idea what’s going on.”
Not only that but investors are sometimes their own
greatest enemy.
As financial adviser Larry Gellman,
also in the Goldberg article, explained why brokers
do not care about your financial future.
“Throughout the late 1990s, investors were firing their brokers
and money managers because they didn’t own enough tech and Internet
stocks, so everybody got loaded up at the tech party right before the
cops came,”. “Most of them were busted and never even got a
drink. Some of them got lawyers and came after their brokers. So the
brokerage firms all came away saying, ‘Never again.’"
This all sound dreadful but it is really not bad at all once you think in terms of the incentives of
the party you are dealing with and act accordingly.
But you also have to be willing to spend
some time researching and making decisions. Even though you may hate
figures and paperwork.
Your finances and investments are a far
too an important part of your life to leave to others.
First you have to take a step back and
plan. Determine what the goal of your investment activities are.
Here making more money than the
neighbours or beating the market by 40% per year is probably not
realistic or appropriate.
The next step is to determine how you
are going to do it.
Invest through a fund or do it
yourself.
The main factor to decide between the
two is how much time you are prepared to spend on managing
your finances.
But time spent should not be your only consideration.
Who knows, you may even start enjoying actively managing your money once you get into it.
Brokers can be avoided by opening your
account at an execution only or internet broker and doing your own investment
research with the help of newsletters, good books and following other great investors.
However, in spite of all the negative news above there are still good brokers and funds to be found you must just make an effort to find them.
Have you signed up for my free weekly newsletter "Investing that makes sense" yet?
Sign up now and receive
articles like this in your inbox weekly.
And if you sign up now you will also receive a
10 page free bonus report - Enhanced Checklist for Value Investors - with over
30 proven checklist items to improve your investment returns.
I respect your privacy - Privacy
Policy
You just have to do your homework and,
once you have decided what avenue to take, stick to your decision
even if you have periods of under performance.
