nottheSEC (< 20)

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Scary words-->Take charge of your 401K.. Options get started now..Irresponsible discount brokers

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July 13, 2009 – Comments (10) | RELATED TICKERS: EAR , N , IT

I have noticed that irresponisble discount brokers are playing on peoples' fears and inviting them to take control of their investments. This is a horrible notion for those who haven't had the benefit of a cursory financial education nor have traded in at least several practice accounts.

I understand communities much like this one are set up to educate. I am just not sure that a beginning investor will understand the principle of earning your dues and " tuition." I am a beginning investor who started seriously looking at the market in 2006. The market has kicked my arse in real life and online.However recently even with a challenging social conscioius portfolio I am close to matching it. I payed my tuition in money lost and continue to pay my tuition in opportunity cost.

In short you will have a deluge of people who didn't adhere to modern portfolio theory diversification in their 401K/mutuals trying to understand how to buy individual stocks. In this enviroment that would be tantamount to recreational pedal boaters running a yacht in choppy waters.

Does this explain the March-June rally led by stocks with poor fundies ? I mean if I was a hedge fund and I saw poor fundie buying I could make money on the way up and eventually down.

Worse are brokers who claim options are easy. REALLY?! Options are definetly not for beginners

ALL IMHO and my nickle...J

10 Comments – Post Your Own

#1) On July 13, 2009 at 1:30 PM, Imperial1964 (97.91) wrote:

Yeah, my (tax-advantaged) retirement money is managed by someone else.

My "early retirement" (or possibly my buy-some-land money) I manage. I do well, but I am still going to leave my official retirement money to the professionals.

Options are easy like lottery tickets are easy. Easy to lose your "investment".

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#2) On July 13, 2009 at 1:52 PM, nottheSEC (< 20) wrote:

Imperial1964 Judging by your score, selections and your RL experience you could probably manage all your accountgs.You understand the time constraints in due diligence.

On options I agree.With the exception of 2+ year call Leaps everbody should be forced to pass the Series 7 or international equivalent before they trade one option.

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#3) On July 13, 2009 at 2:47 PM, jstegma (30.13) wrote:

Irresponsible financial ads are just par for the course.

Besides discount brokers trying to convince suckers they can manage their investment better than just dollar cost averaging into index funds, you have G. Gordon Liddy trying to convince you the intelligent way to invest is to buy gold coins, and you have some b*tch on another ad telling you that stocks are complicated because of PE's and whatnot, but that commodities futures are simpler because they're "a pure price play" (that one is new and scares me a bit to think that someone who finds a PE too difficult is jumping into commodities futures). And then you have all those insurance companies that want to manage your money and charge you some big fat fees for the privilege. Oh, yeah, and then there's Forex which is a great place for a novice to mess around and make some easy returns. So it's pick your poison really. For the investor who isn't interested in spending a lot of time with it, just go with the index funds and forget about it.

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#4) On July 13, 2009 at 3:12 PM, Imperial1964 (97.91) wrote:

I could manage all my accounts. I would have a couple of problems doing so, though.

One is, I don't like to diversify. I hold 10-12 stocks partly because I can't always find time to keep up the DD on that few investment. Also, I find it easier to beat the market when one keeps a semi-concentrated portfolio of several diverse sectors.

Another thing is, the portfolio I manage is about enough to go buy a new Chevy. If I make a mistake it's worth a Malibu instead of an Impala, for example. My retirement accounts are worth about as much as my (modest) house.

A month or two of pay is one thing, but when a mistake means several years of retirement, investing becomes more stressful and emotional.

I'm not sure my minimally-diversified strategy is ready for big money. One has to be really good at detecting potential correlations between investments.

For example, last year I found out 2/3 of my portfolio suffers when the dollar strengthens. Foreign stocks, anything in the US that exports, anything with significant foreign operations, or anything tied to commodities. Plus anything like railways that benefit from high commodity prices.

I'm OK with my portfolio behaving like it is slightly short the US dollar, but since I held only 2 foreign stocks I was very surprised when most of my portfolio started trading with a near perfect inverse relationship to the dollar for a while.

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#5) On July 13, 2009 at 4:27 PM, lemoneater (84.39) wrote:

Yes, I did what I could to discourage a relative from trading forex. He knows less about investing than I do so I shudder to think what would happen to him. Another friend with limited money to invest wanted to do covered calls, but that is impractical unless you can afford to tie up sizeable amounts of money--lots of 100 only.

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#6) On July 13, 2009 at 5:31 PM, nottheSEC (< 20) wrote:

jstegma (99.87) Points well taken. Index funds Yes. LOL If a person thinks PE is complicated he should ask a pro to help him/her buy indexes. Gold coins as your only investment ohh boy?Good for diversification. Bad solo. Forex the worst of all. I tried Forex in the CNBC portfolio challenge. I haven't a clue why I lost just 10 %

, Imperial1964 (95.05) Exactly time! Fundamental analysis market sentiment and various different variables on just 25 stocks is a career.

, lemoneater (47.66) Yep my point. I did the same thing buying low priced low value stock when I started. Forex for the unitiated is much worse.

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#7) On July 13, 2009 at 5:53 PM, Imperial1964 (97.91) wrote:

Well, one of my friends trades just one stock. He took his whole savings and thousands of dollars of loans to trade a penny-stock oil producer in the hope of making enough to pay off his credit card debt. He's a technical trader and shuns fundamentals.

After 6 months of trying to explain risk, I finally explained it in a way that he could understand. I told him I can tell simply by the stock's price that it probably has a significant chance of bankruptcy, and when he didn't see how I could conclude that, I went to the computer and pulled some figures regarding the company's financial health, confirming my suspicions.

So I gave him the ticker of a financially healthy (oil-related) company I own and he's started trading it instead. He's makes a thousand and then loses it again from time to time, but with a debt-free, money-making company he isn't likely to lose it all.

Sometimes I don't understand how people can do what they do.

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#8) On July 13, 2009 at 5:53 PM, UKIAHED (92.26) wrote:

I agree - most folks should not invest for themselves. I sure wish personal finance, insurance, investment, debt and taxes were a required class at high school. It would be a good use of funds IMO.

Rec

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#9) On July 13, 2009 at 7:08 PM, Imperial1964 (97.91) wrote:

Yeah, but that would prevent people from running up credit card debt to be good consumers. You have a more difficult time double-screwing the financially educated.

I really don't believe it is that difficult to manage your own money so long as you understand your limitations and you don't let your emotions get involved. (a couple of big "if's"). No getting rich quick.

My grandpa was a poor immigrant who didn't finish the 8th grade, but he knew how to "make hay while the sun shines" and retired in his late 50's, lives modestly, and always drives a brand-new (and paid-for) car.

He lived through the depression. He didn't know anything about investing per se, just that he should save for tomorrow rather than spending needlessly.

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#10) On July 14, 2009 at 10:23 AM, nottheSEC (< 20) wrote:

UKIAHED 96.94 Spot on. I have been callling for that for years.Just ONE course of personel finance would help so.

Imperial1964 A huge couple of ifs! Yeah my grandfather was a farmer with the same money making accumen.Unfortunately his death changed the families' direction.

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