“You pay a very high price for a cheery consensus.” ~ Warren Buffett
Tracking Broker Recommendations
If you are one of them that is highly reliant on your broker for stock tips and advice, I would like to invite you to track how your investments have done over the years that you were reliant on your broker. For your own good here, create an excel spreadsheet that details the purchase price of each security and whether you acted on the advice of your broker. The eventual sale price, the profit or loss percentage, dividends received and also the total gains or losses in percentage terms inclusive of all capital gains or losses and any dividends received.
If you have already done so, tabulate and add your losses or gains and find the absolute loss or gain. And now the million dollar question.
Did your broker help you to earn money?
And if your broker did help you earn money, well then, great for you. Well done! I would have to say that you are a rarity!
But more likely than not, you would have lost money. And you would have found out for yourself that your broker has made you more broke!
I am not criminalising the profession for everyone has to earn a living. But it is important to know that when incentives are not aligned, yours and your broker, the results of one’s investments will be lacklustre, especially when one relies on a broker. A mungerian framework would explain clearly what the problem is succinctly.
The problem is nested in a bed of incentives, the very incentives that we all are programmed with, the same incentives that we grew up with, those incentives that we use on our children.
“Son, if you do well, your mother and I will get you an Xbox!”
Only this time, the profit generating corporations of our time tell us “Dear employee, if you sell more, you earn more.” In fact, Charlie Munger calls this the an incentive caused bias. A bias caused by incentives which lead to distorted decision making.
And if you think about it, this is no different from what we have been hearing all our lives. The only thing is that your broker is under the spell of those very incentives and for the life of me and you, don’t seem to be at all concerned about our interests. And as retail investors, they are at the very end of the line with regard to those incentives, even though the money that they place with these brokers is technically theirs.
Never Ask A Barber If You Need A Haircut – The Same Thing Applies To Brokers
Now if you asked your broker if he had stocks that he could recommend, he would definitely come up with a list. That list of stocks may have been generated by his own in house research firm. And he will gladly give you his opinion on what you should buy.
That is to be expected and many of you have experienced this.
Now, categorically speaking, brokers earn a huge part of their incomes from a variable component called commissions. That is to say, the more stocks they sell to you, the more you buy through them, the more you sell through them, the more the brokers will earn. Whatever it is, isn’t the more the merrier?
And therein lies the problem. Our reluctance to take control, our refusal to be independent, our adamant and obstinate view that “together is best”(whether we know it or not) has damned many to eternal failure where our financial destiny is concerned.
Modus Operandi Of Brokers
And the modus operandi of many brokers is to offer up the most researched, well covered, the most liquid stocks that can be traded in and out easily. And chances are that, a lot of these stocks are fairly priced by the market.
Think about it. If a stock is so well covered by brokerage and some research firms, what are the chances that the company is actually undervalued? I would venture to say “small chance”. But if a stock is not well followed, therein lies your opportunity to outsized returns when the market recognises that a company is indeed undervalued.
A lot of the deep value stocks which we cover are those that have been left for dead. Although trading at prices less than the liquidation value, we have to understand that many of these companies have a going concern value that is higher than that of the liquidation value.
Take Control Of Your Financial Destiny
We have to take control of our money and our lives for no one will care more about our money than us ourselves. Not your brokers. Not your siblings and not even your parents. Now I believe in discernment. A discernment which can be taught. A discernment which can be instilled and programmed into each and every one of us through education.
I appeal to your higher selves. Let the light within shine forth and let discernment take over. Be wise. Be Discerning. Your brokers will not make you wealthy. You will make you rich. No one else! And if you ever find yourself inclining towards the advice of your brokers ,this article will hopefully serve as your reminder. And do watch the video below. I think you are brilliant enough to understand the gravity of the management of money.
How We Do It At TheHolyFinancier
At TheHolyFinancier, we are big believers in the odd, overlooked, fairly boring, irrationally beaten down, unsexy stocks for the most part. Because it is in these junkyards where one can find massively underpriced, deep value bargains that are assymetric to the upside. Interested to know more? Stick around or create a free account to find out more.
In the meantime, you may want to check this video out that summarises the entire discussion of this matter at hand.
As always, may you be blessed with prosperity, health and happiness!
These books which I have written are case study driven and discuss strategies, mindsets and situational approaches to employing the net current asset value strategy.
What Is TheHolyfinancier About?
- A database of net net stocks or net current asset value stocks
- Investing ideas in members section
- Blog articles and investing education
- Investing research of deep value stocks