Imagine the following scenario:
You have some extra money to invest so you call a brokerage to open an account. After a lengthy discussion with a broker, you decide to open an account and buy shares of XYZ Corp. on his recommendation. A few months later he calls and recommends another idea. You decide to take his advice and purchase the stock since his first pick is performing admirably. This same scenario plays out again in a few months only this time he recommends to short a stock because he feels it’s overvalued (shorting defined). Now he’s three for three and you and you can’t wait for the next call.
Is he a stock market guru…far from it.
The reality is the majority stock brokers are salesman, it’s simply a numbers game to them. What went on behind the scenes in our scenario is that on the first stock recommendation the broker called half his list and told them to buy the stock. He then phoned the other half of his list and told them to short it. So, he now has credibility with half his list.
Now he calls the first half of his list who made money on the recommendation with another stock pick. Once again he suggests half of them to buy the stock and half of them to short it. The list is cut in half once again.
He repeats this process one more time and now he’s down to a list of clients with which he has achieved guru status. Unfortunately for these clients, they will find out the hard way about the “wizard behind the curtain.” Their accounts will begin to get crushed as the true stock market prowess of the broker begins to show itself.
As you can see, this is simply a game that brokers can play with your money. They are getting rich on the fees they charge, not their recommendations. They have no “skin in the game.” When you are gone, it’s on to the next victim.
At Ropay Asset Investors, we put our money where our mouth is by investing our own capital right along side our clients. We make money by producing solid returns, not by generating fees (we don’t have any).