Understanding Broker Talk

As with anything in life you should never turn down good advice and always keep your eyes and ears open for valuable information. However do not be swayed by every thing you hear. It is vitally important to understand that in the investment business there are several types of professionals whose business is to serve a different clientele than the individual operating a stock trading and investment company as a business.

Understand that the advice given by brokers and money managers, radio talk shows and financial planners is usually advice meant for investors and usually for people who are investing for retirement. The trading and investing business operator is into a totally different ballgame. The business operator is operating a business with the primary objective of making money, the retirement investor is in the business of protecting money, risk protection and long term accumulation of funds. Professional stockbrokers and financial advisors depend on the older more retirement oriented investor to support their businesses. They cannot afford to take or recommend undue risks to their clients. They also have the responsibility of catering to the varied needs of many different clients. They must be conservative in their approach and recommendations. "Broker Talk" therefore tends to discount small stocks either because they cannot make big commissions on them but facially because they are supposed to be a lot more risky investments. Maybe they do not recognize that the total downside on a one dollar stock is only one dollar. The downside on a $100 stock is $100 a share, what is more risky in a highly volatile market heavily keyed on institutional leverage in large stocks. You tell me.

"Broker Talk" therefore tends to say things that may not fit the operation of a Trading & Investment business. Here are some examples:

1. They discount small stocks either because they cannot make big commissions on them but facially because they are supposed to be a lot more risky investments. Maybe they do not recognize that the total downside on a one dollar stock is only one dollar. The downside on a $100 stock is $100 a share, what is more risky in a highly volatile market heavily keyed on institutional leverage in large stocks. You tell me.

2. They take very little risk and usually recommend the same stocks over and over to all their clients even though the clients may have differing needs. They are not very innovative about the stocks they recommend. Listen to any broadcast investment show and you will hear the participants talk about the same stocks over and over again. They talk about the Microsofts, the Intels, the General Electrics, and any stock that tends to be in the news already. Anyone can pick these types of stocks.

3. They recommend large cap stocks which most small investors can only purchase a few shares of, and which can drop in price significantly because of there inherent volatility. A small percentage decrease in the price of these stocks can produce a significant dollar loss to a small portfolio.

4. They usually over recommend long term holdings without equally recommending the need to closely follow the changes in your portfolio. Following your stocks closely takes time. Brokers, money managers and financial advisors cannot physically put in the time it takes to individually manage hundreds of clients accounts in the same manner each client can spend managing his own account. Therefore brokers and financial advisors who recognize this fact will naturally have to emphasize long term investments over a trading approach to each individual clients account. If you don't follow the changes in your portfolio how will you maximize profits and minimize losses in the mots effective way. There are some alternatives to not watching your portfolio carefully, like investing in mutual funds, using professionally managed accounts, using stop losses etc., however these are only ancillary strategies, the most effective way for you to maximize profits and limit losses is for you to take the business approach to watching and managing your own money and investments. This is the ultimate approach if you are not prepared to take the efforts necessary to do this you will not be able to maximize your money making opportunities in the trading and investment arena.

Remember just like any profession most people can become a broker or stock analyst and learn all there is to know about the stock market. So can you. In addition you understand your personal situation and can research and follow the stocks you are interested in particularly when you have the support services of the Hannaian Research Center which is specifically designed to help you operate your trades and investments as a business. So beware of "Broker Talk", it is generally not designed for the type of operations you will be involved with. There is nothing wrong however with talking with brokers and other financial and investment professionals. Remember the more information you acquire the better. Knowledgeable business people acquire knowledge from wherever they can get it. Knowledge is what keeps you ahead in the ballgame. But remember you must make the ultimate decisions and no one can watch you hard earned money better than you.