If You Don’t Know Who the Sucker Is…

I guess I’m “old school” when it comes to investing. I say this because for our clients I invest in real stocks. By “real” I mean the actual shares of actual companies.

I do this for two major reasons:

1. I feel that we have an “alpha” advantage by picking stocks individually. For those of you who have real lives and don’t spend any time at all boning up on investment jargon, “alpha” is the value-added that an investment adviser (like myself) brings to the table. More technically, it is a rate of return that you receive that is a little bit out-sized for the level of risk that you are taking. Layman’s example: The market increases by 5% and your account increases by 5%, but you only have half of your money in the market: That’s alpha (very roughly), if you will.
2. Reason Number Two: Never Pay Retail. I read that the total markup on diamonds can approach 1000%. The reason for this is that there are a lot of hands that a diamond goes through on the way from the dirt to your digit. So goes it for packaged investment products as well; investment company, investment manager, investment manager’s stock broker, fund wholesaler, brokerage firm, broker, you. The bottom line here is that paying retail is never OK if you are buying an investment and hope to make any money at all on it.

I got this way because I am a “reformed stockbroker” and if Joshua Brown at The Reformed Broker hadn’t already snagged the name, I probably would have. I’ve had similar experiences and find myself left with a similar disdain for the industry because I’ve seen it from the inside out as well.

Joshua’s history with the industry started about the time that mine left off and it’s interesting (although not surprising) to see that things haven’t really changed, despite all the spin that’s being thrown out by commissioned brokers about how it ain’t so.

For the record, if you are a stockbroker, here is The Reformed Broker’s best recommendations about what to do with the latest packaged product that management is “suggesting” that you offer to your clients.

And if you’re not a stockbroker, then you ABSOLUTELY MUST READ IT if you don’t want to be the one wondering why you were invited to play.