The Stock Market - How Just One Question Will Tell You All You Need To Know About Your Stock Broker

Last clip we looked at the existent public presentation of the stock market (we used the Dow Mother Jones as a mention point) and the evident public presentation that brands the newspaper headlines and can be seen by a insouciant expression at a chart or "ballpark" figs - briefly; the Dow went up, for example, less than 50 points between April 1999 and April 2005 - essentially 6 old age with no growth!

But behind that seemingly "becalmed" Dow there were at least 10 important moves each and every twelvemonth totalling many thousands of points!

But did the Wall Street Moguls, the so-called "Masters of the Universe" do you any money from those huge movements?

No.

Of course of study they didn't!

Here's how I know...

The web is a goldmine of information. Knowledge that was just not available to the private investor or bargainer is now there at the fourth estate of a mouse button.

Forget the Freedom of Information Act - the Internet go forths it standing.

Foremost amongst websites offering information about the financial facts of life (the things that affect you directly - Mutual Fund public presentation etc) is Morningstar.com.

And amongst other things, morningstar.com prints a conference tabular array of common finances on a weekly, monthly and annual basis.

If you check out the tabular array that I have got got provided at my website (www.TriggerSystem.com - full nexus at the underside of the article), you'll see the public presentation of the top 20 or so common finances over the last 10 years.

I've chosen the 10 twelvemonth chart because common finances are essentially long term "investments", and which most people look to maintain almost for ever (the chart on my website is by it's very nature a small spot out of date, but things haven't improved too much since that silver screen shot was taken. If you desire the up to day of the month figs just travel to www.morningstar.com and search their information alkali for the 10 twelvemonth public presentation of common funds)

Take a look...

You'll see that the top rated fund, over 10 years, have shown a sum growing of 23% - which at first sight looks fairly impressive; 23%; wow!

But the problem is, that 23% is entire growing over 10 years, not growing per annum.

So the 23% sum growing starts to look like a less than impressive 1.7% per annum compounded (hey, even the banks are giving more than than that on deposit).

I'll be honest, I didn't believe it either - so I sent off an electronic mail to morningstar.com and they confirmed my worst fearfulnesses - 23% is the sum growing over 10 years.

Sheesh!

And the average growing of all 1304 funds? A less than impressive 7.3% over 10 old age (less than 1 one-half of one percent)!

Check out that concealment topographic point under your mattress - at least you don't have got got to pay exhorbitant fees to maintain your money there.

The one certainty is that the Fund Managers will not, personally, have fared so badly - they will still pull their large wages and enjoy all the benefits of charging you fat fees for their "professional expertise"

As Seth Thomas Sowell wrote:

"It is hard to conceive of a more than than stupid or more dangerous manner of making determinations than by putting those determinations in the custody of people who pay no terms for being wrong"

OK, I cognize not everybody have money "tied up" in Mutual Funds and some people prefer the higher tax returns of the Stock Market.

So what about the analysts and stock brokers?

Well, we all cognize about Enron and the others - the pillory in the early 90s that crippled so many of America's biggest pension funds.

Use the TriggerSystem nexus (shown below) to see the Enron chart screenshot, which is lower down the page (below the Morningstar.com silver screen shot).

You'll see that on 20 November 2000 there was a "technical sell signal" flagged for Enron when it was trading at just over $80 per share (don't worry about the term "technical sell signal" - it just intends a sophisticated trading programme told it's owner that he should SELL).

Over the adjacent 2.5 months, Enron's terms fluctuated up and down without really going anywhere, until the center of February 01 when it really started to skid (just as it appeared to have got stabilized at $80).

As they say, a image is deserving a thousand words, and to salvage my typing fingers - the numbers talk for themselves.

Follow the chart to the right and you'll see that the major stockbroking houses and analysts were still saying "BUY" as the market lost 75% of it's value over the adjacent 9 months.

It was only on October 19th 2001 - just 11 calendar calendar calendar calendar months after our "technical sell signal" that the first warning appeared from the Brokers and Analysts - and even then there was a additional major bargain reccommendation before Enron slipped again to be deserving less than 40 cents on 30 November 2001 - A diminution from $80 per share to $0.26 per share in 12 months!

And all the clip the major brokers and analysts were telling their ordinary clients to either Buy or Hold.

And as we later establish out, the Brokers and Analysts were telling their biggest corporate clients a totally different story.

So, whilst the Stock Market is your best friend (trust me on this one, or expression for my former article) - the people who operate it may simply be their ain best friend, and from your point of view, any advice you have from them should be taken with a very large pinch of salt.

And if you still believe you can swear the advice they give you, here's the simple "5 word question" I mentioned at the beginning of this article...
Ring them and ask: "What Guarantee Make You Give"? Just pick up the phone and inquire them about the warrant they give you regarding their advice.

Once they've stopped coughing and sputtering and picked themselves up from the floor, you may hear this well worn mantra: "the value of pillory can fall as well as rise" etc etc.

If they're not prepared to vouch their advice, then frankly their advice is not to be trusted.

More next time...