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Apr 1, 2006 6:19 pm

Ok, here goes...



I have absolutley no experience in brokerage / trading / investment banking, etc. other than a B.S.B.A. with an emphasis in finance and banking. My professional experience is with a major captive automotive finance company. I am considering a career change and have a few questions:



1. I view diversification as a function of uncertainty with your valuation process. The more confident you are with your valuation process, the less diversified you will be. Obviously, the basic premise of human behavior is greed, and people will operate within their circle of competence to satisfy their greed. If they knew what the hell they were doing, why would their portfolio be comprised of more than 4 or 5 securities? Isn't Buffet proof of my theory? Opinions, please...



2. Is it possible to take a series 7, 63, etc., exam without being sponsored by a firm? I would like to take the exams, but don't like the idea of getting on with someone for this purpose.



3. Since I have such strong opinions about investing (see # 1 above), should this dissuade me from pursuing a career with AG Edwards, Edward Jones, ML, etc.? I guess I would like to see a firm that pays contingent on the success of the client. Are there any firms doing this? So, if the client does not make money, the manager starves. Why not have it set up this way? Wouldn't this completely weed out those who don't know what they are doing?



Thanks!

Apr 1, 2006 6:37 pm

You think too much. Thinkers don't make it in our industry.

Apr 1, 2006 7:45 pm

1.  Youre a moron


2. No you want NASD licenses, you must be sponsored by an NASD firm


3.  If the markets are all down you want to work for free?  See #1


Apr 1, 2006 8:04 pm

Just my opinion, but here goes it:


As to your first point: Nondiversification is good, if and only if you can afford to wait for the rest of the investment community to come around to your way of thinking. For example, you might know a stock that is a screaming value, but if the rest of the investors don't see it that way, it will languish until your client has had enough and transfers their account, from you, to another firm. Since you mentioned Buffett, look at his portfolio of companies and you'll find more than 4 or 5. And he can afford to wait for the market to assign fair value to these companies. Plus, with the investing that is done with the insurance float at Berkshire Hathaway, there are even more companies in the portfolio.


Second point: Sponsorship (by a firm) for the securities exams is required. No way around that.


Third point: Pay for performance? That concept is fraught with peril, in this business. For example, if the market "loses" (notice the spelling) 20% and your client only loses 5%, do you get paid? If you believe the market is overvalued and you place your client's money in a money market fund to wait for a buying opportunity, should you get paid? Also, if you give me $200,000 to invest on a pay for performance compensation model and I've got personal bills to pay, I might just put you in the riskiest stocks, options, and/or futures I can find (hoping for a quick reversal of fortune). In essence, I'd be gambling with your money, but keeping a percentage of the winnings. What's my risk? Not getting paid. What's your risk? Could be a lot more than $200,000!


"Weeding out" those who don't know what they're doing? In my opinion, that pretty much covers every internet analyst during the late '90's, but they made a ton of cash. It took years before they were "weeded out". As for brokers, the ignorant ones usually drop out of the business or are fired.


Investing in the market can be approached from a lot of different angles. Choose any angle and at some point you'll be right. Could be tomorrow, next year, or ten years from now. Which angle to choose? Therein lies the rub.


Good luck!

Apr 1, 2006 8:06 pm

How am I a moron? Am I wrong to say that the basic premise of human behaviour is not greed? So, If a person knew what he was doing, had a valuation model that worked, and was confident that a given security would offer a 20% return, while he was also confident that other securities would at best offer a 10% return, he should diversity? I don't understand...



You must be a moron if you are unwilling to be compensated unless your client makes money. So, I am your client, you are going to tell me that I am not going to make money in a down market? So, successful investors don't make money in bear markets? WTF?!

Apr 1, 2006 8:09 pm

doberman, thanks for your reply!

Apr 1, 2006 11:01 pm

Doberman's response was valuable and accurate.  My additions to his thoughts...


1)  If you are that confident of YOUR valuation process, you don't need to do what we do.  You need to borrow as much cash as possible to invest for your own account, start an insurance company and be Buffett Jr., or start a hedge or mutual fund (good luck getting people to throw $ at you).  By the way, Buffett was never a financial planner or advisor.  Ironic Catch 22--once you've proven you're an investment genius like Buffett, Miller, Lynch, Soros, etc etc, tons of people will pay you to invest their $ but by that point you don't really need their $.


2)  Irrelevant-see #1 and #3.


3)  Answer to your first ? in #3 is YES.  If you are my/our client, our primary role is NOT to make you $ in a down market.  It is to assist, goad, and help you to achieve your long term goals.  Your investment performance vs. the S&P or any other benchmark has a relatively low correlation with probability of achieving those goals.  They pay for performance in the hedge fund world, but it's somewhat heads the manager wins, tails the client loses.  If you don't like my comments, sorry---go away, because you're barking up the wrong tree.

Apr 2, 2006 12:36 am
workscorgi:

How am I a moron? Am I wrong to say that the basic premise of human behaviour is not greed? So, If a person knew what he was doing, had a valuation model that worked, and was confident that a given security would offer a 20% return, while he was also confident that other securities would at best offer a 10% return, he should diversity? I don't understand...

You must be a moron if you are unwilling to be compensated unless your client makes money. So, I am your client, you are going to tell me that I am not going to make money in a down market? So, successful investors don't make money in bear markets? WTF?!


You're a moron because you don't know that it's illegal to be paid based on performance.

Apr 2, 2006 8:08 am

There is no model that avoids losses, except cash.  Why do really
good companies with really good sales, cash-flows, management,
earnings, etc... get hammered un-deservingly?  How can any "model"
avoid an unexpected event?  Sometimes this event is just profit
taking of traders based not on fundamentals. 



Non-diversification, or a more concentrated strategy, is good for a
portion of an investors portfolio, but as a whole it is
dangerous.  If you were employed by a major firm and you wanted to
sugest such strategies, each investor would have to be "aggressive" in
the eyes of the client profile (and compliance officers).  If you
went forward with it, as a rookie, you would land in arbitration.

Apr 2, 2006 10:43 am
workscorgi:

How am I a moron? Am I wrong to say that the basic premise of human behaviour is not greed? So, If a person knew what he was doing, had a valuation model that worked, and was confident that a given security would offer a 20% return, while he was also confident that other securities would at best offer a 10% return, he should diversity? I don't understand...



You must be a moron if you are unwilling to be compensated unless your client makes money. So, I am your client, you are going to tell me that I am not going to make money in a down market? So, successful investors don't make money in bear markets? WTF?!



You're not WRONG, it's just that you're "half-right".  The two basic drivers of decision making for most non-professional investors are greed(as you already observed) and FEAR.  Problem is a concentrated portfolio such as you describe does not handle the "FEAR" (of loss) issue overly well when the market moves temporarily against your favored sectors.  (This ignoring the obviously possibility that you could be completely and permanently wrong in some or most of your security selections.)  Then the client pulls the ripcord out of FEAR of losing before your plan ever comes to fruitioni!

Apr 2, 2006 8:10 pm

Buffet chose to bet against the dollar.. He is losing a lot... So even the best chose wrong some times...


Good luck...

Apr 2, 2006 9:06 pm

Joe is right...greed AND fear are the two major motivators.  In reality, your non-diversified portfolio would land you VERY few clients, and probably a lawsuit or two.

Apr 2, 2006 10:36 pm

Fear trumps greed. That's why I sell so many EIA's.

Apr 3, 2006 8:50 am
Dirk Diggler:

Fear trumps greed. That's why I sell so many EIA's.





Why does your product choice not surprise me.

Apr 3, 2006 10:36 am

Hey Dirk, those fat commisssions arent the ONLY reason you sell those EIA products? You sleep easy knowing you are slamming people into products with 10+ years of disgusting surrender charges?


"But hey, I'm only selling em what the y want".... a pathetic comment from a 'professional'.....


The good thing is when the regulators crack down on these abusive sales, you'll be in arbitration so much you wont have time to come here and poison this site with your ridiculous and ignorant comments.

Apr 3, 2006 10:47 am
blarmston:

Hey Dirk, those fat commisssions arent the ONLY reason you sell those EIA products? You sleep easy knowing you are slamming people into products with 10+ years of disgusting surrender charges?


"But hey, I'm only selling em what the y want".... a pathetic comment from a 'professional'.....


The good thing is when the regulators crack down on these abusive sales, you'll be in arbitration so much you wont have time to come here and poison this site with your ridiculous and ignorant comments.




Please point out one sale where I was "abusive."

Apr 3, 2006 12:43 pm

Please note that I wasnt implying that your sales were abusive. Simply that the regulators are taking notice of these widespread abusive sales in the industry.


The fact that you so proudly tout that you sell these EIA's, that you love the big commish, and that you "sell them what they want" only suggests that your practice is run by selling this crap to clients.


Keep pushing those EIA's and keep making that 10-15% trade- you're a joke.

Apr 3, 2006 1:49 pm
blarmston:

Please note that I wasnt implying that your sales were abusive. Simply that the regulators are taking notice of these widespread abusive sales in the industry.


The fact that you so proudly tout that you sell these EIA's, that you love the big commish, and that you "sell them what they want" only suggests that your practice is run by selling this crap to clients.


Keep pushing those EIA's and keep making that 10-15% trade- you're a joke.




Wanna know the BEST part? The payout is 100%!!! I'm sorry you can't sell them at your JOB.

Apr 3, 2006 4:28 pm

Perfect...... thats the exact response I wanted to incite out of you... You just further made a fool out of yourself to the people who check this forum...

Apr 3, 2006 4:31 pm
blarmston:

Perfect...... thats the exact response I wanted to incite out of you... You just further made a fool out of yourself to the people who check this forum...


What I am curious about is what firm would have paid him $3,500 per month to study for Series 7 then turned him loose to rape his clients.