I have a couple of friends who make great money as construction contractors, and who follow the market somewhat. One of them gets a couple of news letters every quarter and believes most of what he reads. My problem is this. This good friend, who calls mortgage brokers WHORES because of the fees they charge, just gave the local Ed Jones rep 3500 bucks to manage his 100K account. He says the guy "guaranteed" him 9 - 12 % / year on his investment. I don't think the guy actually guaranteed that rate of return, but he probably implied it. My friend says he does homework, but obviously not enough to find out he could just simply buy the Nas, the Dow, or the S&P (He has no idea what the q's diamonds or spyders are). Turns out this guy put him into five stocks. I don't remember which ones specifically, but they were all blue chips which were on the the Ed Jones "Focus List." I guess the point is this. All I'm trying to tell this guy is that all he has to do is a little more homework and avoid the fees and commissions. Find some discount broker somewhere and buy an index. And he just doesn't get it. He trusts this guy. It's a small town and he goes with the trusted Ed Jones Guy. All I do is drive to the big city, an hour away, every day and trade for a living, so I don't know what the fukk I'm talking about. It's all probably because his dad has gone to this guy for years and has basically bought every individual stock in the DOW, and paid commissions on each one. He's used to it and is passing it on. I know some people think I'm over reacting, but I get tired of people getting raped without even knowing it. So: do you just keep your mouth shut and enjoy your own cheep rates and returns, or do you try to educate thes friends. It seems that educating them just pisses them off.
They are sheep and they need to be led by the nose. They don't want to be bothered, they don't have the desire, and they want, above all else, to be coddled and mollified when the shit hits the fan. $3,500 to buy into a dangerously-undiversified portfolio when for a $10 commish he could've bought SPY through IB. No, leave him be... he may actually take offense to your suggestions. Ignorance is bliss.
You've already got the best answer for now: Keep quiet and keep your friends. They are just going to have to learn the markets/investing in their own way, in their own time. Many professionals, entrepreneurs, and the like, who lack investment experience, believe they have to rely on others to manage their income - as hard as it may be for the experienced trader to understand. Concentrate on you own continued trading success, and sometime down the road, your friends - all of them by then - will see the do-it-themselves "active" trading/investing light through your hardcore trader example - if they're open to it. Whether you like this character or not, you could drop copies of this issue on your friends and suggest they TiVo the time slot with the idea that they might gradually start to pick up some short term investing basics on their own...
Very wise talk riskarb. May I add that we really want lots of these fellows to keep our art profitable. Thank heavens for them.
That's a damn good point actually. Seriously. Even though his one time contribution is not a serious factor in our daily quest, if we try to disuade all un-educated participants from partaking in their "investing", where would that leave the rest of us. As a matter of fact, I do believe my pal said that this "advisor" of his said he would want to do a yearly "checkup" on his acount, perhaps even an adjustment in his portfolio. Damn. I just found the answer I was looking for.
True. That $3500 is his 'crying fee' - where your friend gets to whine and complain to his broker when his investments are not doing well. Consider it equivalent to unlicensed pyschiatric work. I'm going to guess that next year, the 5 stocks that he should be invested in will all change - to generate commision, of course! I met with some joker from one of the smaller investment houses as a courtesy to a friend who invests with him. He tried to sell me on a 2% management charge for a portfolio of index funds. I had such a good laugh after he left the building that it was worth the 20 minutes of my wasted time.
Well, lemmie ask you this, your friends are construction contractors. If you decided to renovate your kitchen, and picked a contractor without getting estimates, having it in writing, knowing how much things usually cost etc. etc... would you EXPECT your knowledgeable friends to tell you? If the answer is yes, then you are obligated the other way to do the same... You and I are blessed with the knowledge of knowing how The Street works. We know that anybody who says they know anything is shit... But obviously we are pretty ignorant in areas where we don;'t make our living, so we rely on others to help us out...