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BloggingStocks: 3 Questions To Ask Your Stock Broker (comedy but play along)

August 11, 2008 8:30 PM

thumbsdown.jpgThis is pure comedy, but play along. They have a post that says here are three questions to ask your stock broker. First of all, you have to remember that brokers are paid to sell, they are not analysts. With that said, the average person should have their money wisely managed by a professional. But you need to choose the firm based on their integrity and competence of their analysts FIRST and then choose a broker you like within that firm. Some brokers may be far better than others AND may make their clients more than others, but in general, that isn’t the basic premise of being a stock broker. They get paid on assets under management, not profits.

With all that said, here are the 3 questions you should ask, according to the article.

1. What is the most important factor that will affect my returns?

The correct answer, according to the article is asset allocation. I agree, for people that do not understand the markets, this is correct.

2. What is the standard deviation of my portfolio? Hmm, I think what they are digging for is the Beta for their investments. If they put people in high beta stocks, then there is implied risk. Ok, I agree. People’s investments should have different beta’s depending on age, etc.

3. Are you able to put together a group of stocks that will be able to beat the market over the “long term”?. The correct answer is supposedly no, that you cannot beat the markets over the long term.

 Interesting stuff, like not at all. Unfortunately, IT IS ALL 100% TOTAL AND COMPLETE CRAP. You cannot beat the market if you are a salesperson. You cannot beat the market if you watch shows on TV and take their “expertise”. You cannot beat the market if you do not know what you are doing. I will agree with all that. But to say that the market cannot be beaten long term is complete nonsense. All of this beating the market “long term” nonsense goes back to the this supposed efficient market hypothesis. The market is NOT efficient on ANY level, and I have made that assertion at least 100 times on here. It is total nonsense. The markets are driven by fear and greed which is reflected in supply and demand. Nothing more. If the market was “efficient” would AEM have climbed to $90 when it is likely not even worth $35? No. it has nothing to do with anything.

Let’s look at it this way. My opinions are up what 50%? 60%? 70%? More? in 4 months? I haven’t bothered to figure it out. And this doesn’t count my “view” to exit all energy and commodity stocks, which have plunged. And doesn’t count my long term view that FNM had little value, nor my view that GM would go to $10, homebuilders would go far lower, etc. etc. And it doesn’t even count my calls that “if you want to be long IBM should trade higher”. Nor my view to avoid AAPL near $200. I am not counting any of that. And I am just some amateur typing “in his garage” so to speak after work and studying the market while drinking 4 Bud lights after work? lol. And the best and brightest minds alive cannot beat the market but somehow I can?  True, 4 or 5 months isn’t “long term”. But I would be up FAR more if I had 8-10 hours a day to put into this, not 4 or 5. I do not even consider it a challenge to beat the market on my calls. My standard (which I will never live up to) is to never be wrong. I get completely aggravated when I make a wrong call and will study the chart until my eyes are red to see what I missed. Then again, i think i have only been wrong once, GE, and i thought the SP would reverse and take that play out, which it did. But I made the call, so I will live with it.

No, people can beat the market, but they aren’t paid to beat the market with YOUR money. They are paid to sell and properly allocate assets based on your risk profile, not make above average returns. So you can ask your broker 893 questions, it is not even relevant. The “best’ salespeople will simply answer the questions better than the others. Nothing more. To imply that this means they are “good brokers” is total and complete nonsense. They might be, they might not be. But answering questions correctly certainly is not an indication, of any kind. if you want to have a stock broker to manage your money (and most people should), you need to make your decision on the firm and their analysts and THEN try and find one you trust within that company.

Sorry for another “rant” but i am so tired of hearing this “cannot beat the market long term” stuff related to some efficient market hypothesis concept taught in schools. I just think it is total nonsense and not even close to accurate.

Written by Tom@StockBlade.com · Filed Under General Investing/Trading Commentary 

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