Your Friendly Stock Broker

[The Hedgehog]

The CPA question sparked a funny memory. I took the Series 7 last year. It is basically the test you take to be a registered securities rep.

I have never needed it until I started fooling around with consulting work that had commission potential. I actually had 15 years of real world experience in managing assets upwards of $300 million.

The test was kind of funny. I am glad that I had the class because some of the dated fixed income and economic questions were not even factually correct. Kaplan taught me how to simply pass the test. That was what I wanted.

What was funnier was the profile of my class. As I looked around the room and listened to questions, I probably found about 3 other people out of the class of 40 that had ANY business providing complicated financial advice. I would say that most of the class passed the test. Within a month or so there were probably 25-30 more people out in the world offering financial advice without a clue.

I can certainly respect that we all have to start somewhere but it was still kind of a scary thought.

By all means this does not mean that all brokers are bad. I have met some very talented individuals in the field. In my industry you do have those still selling product that they don't really understand to clients that don't really understand the product. Lately that has been a very bad thing.

[Conquistador_del_mar]

The CPA question sparked a funny memory. I took the Series 7 last year. It is basically the test you take to be a registered securities rep.

I have never needed it until I started fooling around with consulting work that had commission potential. I actually had 15 years of real world experience in managing assets upwards of $300 million.

The test was kind of funny. I am glad that I had the class because some of the dated fixed income and economic questions were not even factually correct. Kaplan taught me how to simply pass the test. That was what I wanted.

What was funnier was the profile of my class. As I looked around the room and listened to questions, I probably found about 3 other people out of the class of 40 that had ANY business providing complicated financial advice. I would say that most of the class passed the test. Within a month or so there were probably 25-30 more people out in the world offering financial advice without a clue.

I can certainly respect that we all have to start somewhere but it was still kind of a scary thought.

By all means this does not mean that all brokers are bad. I have met some very talented individuals in the field. In my industry you do have those still selling product that they don't really understand to clients that don't really understand the product. Lately that has been a very bad thing.

Yep, over the years before internet investing, I have had quite a few stock brokers. I remember asking one in Dallas who had a sort of insulting, condecending attitude with me why he was still working if he was really as good as he portrayed himself to be. His answer added up to ziltch.
My best friend from college, however, is now running a large fund in excess of one billion, and he has a great track record to go with it. Some have it and some never did - lol. Bill

[f_inscreenname]

I remember ten years ago receiving an inheritance in stocks. Being I never owned a stock before I went to CSB to open an account. After everything settled I went back to my local branch to ask for some advice on what I received. The kid behind the desk said, “looks good to me”. I knew I was on my own until I made 500 grand to add to my pittance so I would qualify for the premium service.

[The Hedgehog]

I remember ten years ago receiving an inheritance in stocks. Being I never owned a stock before I went to CSB to open an account. After everything settled I went back to my local branch to ask for some advice on what I received. The kid behind the desk said, “looks good to me”. I knew I was on my own until I made 500 grand to add to my pittance so I would qualify for the premium service.

"Looks good to me. I like it." Nice, I have seen that.

I was doing some consulting work for bank that bought a local office from an investment firm (actually they bought the brokers). They wanted me to go have a look to make sure that all was cool. I pulled a trade blotter and did a rough and dirty suitability test (to make sure that they were selling suitable investments). I figured that it would be kind of a boring engagement. I spotted a few CMO trades that got my interest. Yikes, retail guys fooling with mortgage derivatives. This was getting better. Having managed a CMO portfolio, I though I would have some fun when I interviewed the brokers. I had one of my broker dealer buddies run some cashflow simulations. Oh yeah, these bonds were horrible. When I interviewed the brokers, they had NO idea of what they sold. They started out by selling a few GNMA CMO's to some municipal accounts. The conversation was like this (with maybe a little more tact):

Hedge: Ok, so the bonds have full P&I backed by the US govt so you can't get hurt.

Broker: That's right (and feeling pretty smug)

Hedge: Ok, good. You every wonder why they are paying a current yield that is 3% above typical full faith and credit?

Broker: Well they are CMO's.

Hedge: Ok, so we are covered on the P&I, what can you tell me about the market risk and the variable cash flows?

Broker: Well they are 2 year bonds so it can't all be bad right?

Hedge: Wrong, rates drop 1% and they go away in 4 months and rates go up 1.5% and they extend to 20 year. Ok, so you sold a municipality some bonds that can lose 20% of their market value at the drop of a hat. How many of these types of bonds did you sell? Any personal investors (I already knew the answer to this).

Broker: Well there were a few trusts and some private investors.

These bonds had a nice commission. At the end of the day we found numerous municipalities, trusts, little old ladies etc that had no idea they were taking massive market risk on fixed income securities. The "seasoned" brokers really had no real idea of how these bonds worked. Needless to say the CEO put a quick stop to this type of nonsense.

Moral to the story, know your broker and know what you are buying.

[f_inscreenname]

Moral to the story, know your broker and know what you are buying.

Ya but I bet a bunch of folks thought they knew Bernie also.:bonk:
I'm starting to feel the whole market is a giant ponzi scheme.