Friday, February 18, 2011

Volume 3 Issue 7: Intelligent Investing

Real Estate and Stockbrokers

For those of you who have followed Robert Kiyosaki relatively closely, you must have heard the following rhetorical question a million times (give or take a few):

"Why would you consult your stockbroker about real estate?"

The first thought that should come to your mind is, what does my stockbroker know about real estate? Very often, the answer is, "Not much". In fact, that same answer also applies when you ask what your stockbroker knows about investing.

To know why, let us just think for one second what a stockbroker really is. For starters, a stockbroker is most definitely not an investment advisor. Wikipedia gives us a the following:

"A stock broker or stockbroker is a regulated professional broker who buys and sells shares and other securities through market makers or Agency Only Firms on behalf of investors."

Yes, you read it right. His primary function is to buy and sell shares on behalf of investors. In actuality, a stockbroker may or may not be an investor himself. So why do we rely on our stockbroker for "advice"? Why are we ever so willing to get tips and rumors from our stockbrokers about which stocks are on the move and which are not? Very often, after their predictions turned out to be false, they will give you the same old reason:

"Who could have predicted the that the stock would tank? Even experts did not predict it."

They may even say this with their conscience intact because they do not realize that it was upon their advice, tips or rumors that the investor made a trade. And the best part is, after being bitten over and over again, we go back for more. Maybe we decide to switch stockbrokers, in hopes that the next one can give us better tips and more accurate rumors, but we still go back for more.

This article is not meant to belittle the profession of stockbroking. They have their purposes. Who would I call if I wanted to make a trade or place an order? But that is precisely what they are. They are traders. They find buyers and sellers, and match demand with supply.

This is not very different from a used-car salesman, or a vegetable seller in the market, or a unit trust agent. We must not forget that their compensation is based on the amount that we trade with them. It is in their best interest that we make trades. The more, the better.

 So, how do we tell the difference when a stockbroker actually knows that a stock price is really going up, or when he is making a hard sell to you?

Well, the next time your stockbroker tries to persuade you with tips and rumors, perhaps you can try asking them:

"So if this is really going to go up, how much are you buying for yourself?" 

The picture above shows a die that which has a Buy, Hold and Sell calls on its sides. For all we know, our stockbroker could be on the other end of the line throwing this exact die, and giving you advice based on the results of the die. The biggest joke of all is that I found the above picture from an investment advisory. I wonder how much business they get by publicizing themselves with a die for stock calls.

This brings us to the Main Streeter Portfolio. I understand that many of you have been waiting patiently for the  first purchase by the portfolio and let me say that this is intentional because we are working on the final stages of our research.

Let me declare that more often than not, the stock analyses that are featured in the Main Streeter will consist of stocks that the publisher and its associates have an interest in. This is not a ploy to induce mass purchases to drive the stock price up for the publishers of the Main Streeter to make a quick buck. It is because we strongly believe in "eating our own cooking".

Just as I suggested above, when your stockbroker recommends a stock, you should ask how much has the stockbroker invested in that stock. Over here at the Main Streeter, when we feature a stock analysis, more often than not, we would either be already invested in the stock, or will make a purchase soon. That is why we are taking our time in finishing up the final stages of our research to confirm a few more details before we feature our first stock analysis.

No comments:

Post a Comment