Newbie - Stockbroker Related Question

Hi all,

First of all, wish you all have a great new year, and find great success in business/work/trading/live.

Anyway, I got a question related to stockbrokers, may be some of you can share some insight. Heres go:

A stockbroker not only trades on client's behalf, he/she also provides advice to client (on some explosive situation), right? So my question is, can a stockbroker own any share under his/her own name?

cheers

No.

A stockbrokers recommendation maybe a combination of research data presented to him through his firm or could well be that they have just been pitched to by the company being recommended.
Brokers recommendations should be treated the same as recommendations from your local cabbie.
Unfortunately brokers dont have a direct line to fantastic trades.

Ponder this!!
If they did they wouldnt be brokers would they--they wouldnt be able to trade their own accounts quick enough!!
Now I know of many who move from brokerage to brokerage but only one that went fulltime trading.

i'd be wary of stockbrokers :/

When i first started investing I liked two companies CMQ and NRT i was seriously considering just putting 50 percent of my capital in each. I couldn't find any broker recomendations for those so i thought i should do the 'safe thing' - ie spread my money into more parcels and buy the strong buy reccomendations from my online broker info. The result was that most or all of those broker recomendations lost me money or didn't move much at all (was a bad time to enter the market).. My own choices moved about 500% + in the next year or two.. It would have been just luck if i had of bought my instinctive picks but the point is the broker reccomendations weren't much chop..

IMO thiers two big mistakes a newbie can make
This is to hard..
This is to easy..

This to hard: 'I'm just a new investor and don't stand a chance against the professionals who have studied the market and technical analysis for years. i'd better find a professional who can tell me what to buy..

I was particually fearful of technical analysis because i thought it would take years of study but in a few hours you can have a very basic understanding of technical analysis which goes a very long way...

you often see this in chat rooms people are very scared of TA but a basic level of understanding is essential and not hard..

THis is to easy: The other trap is to see a stock thats had an announcment where it runs to the moon or look back over big winners with huge gains and get mesmerised by the 'easy money'.. Hindsight is really deceptive people are more likely to say 'i can't believe i didn't buy ??? at $??.??.. and make a big thing about it then they are when they almost brough a dog stock.. hindsight doesn't consider that they migth have sold the share way to early without letting thier profits run.,. the newb then goes off and throws some money at the next big things and get caught out when the heat comes off the stock.. they have money sitting in thier stock unable to cope with the failure and take a loss creating an even bigger one

bit of a rant ....anyway i guess i mean that broker reccomendations aren't to be trusted.. thierr not completely bad but you should really back yourself also and get a basic undertanding of TA, FA and how to protect your capital by stop losses etc

i wouldn't touch a stock without some basic positive technical signals despite how great the fundamentals are or how many brokers are spruiking it..

____
The above is just my opinion derived from my own experiences and watching others, things could be completly different for others..

I agree with what has already been said, except that I know brokers who definitely do own shares, Tech.

I'm not sure from your post whether you understand the difference between discount (online) brokers and full service brokers? Online brokers are hugely cheaper but do not provide advice. However, with E-trade which I use and probably most other discount brokers, there are research links available with your membership.
The full service broker, on the other hand, will charge you megabucks, talk a lot and sound very knowledgeable if you don't know much yourself, and recommend you invest your hard earned in whatever they are spruiking at the time. e.g. if they are underwriting a float and getting paid millions for so doing, they will attempt to persuade you that this particular IPO is the share of the century, you will make a motza, and the consideration of a possible loss will definitely not be mentioned. Trust me, I know this from bitter experience. Like Tarnor, my portfolio contains stocks I've picked myself which are doing very nicely, and some awful dogs - full service broker recommendations from some years ago - which I'm gradually cutting loose and accepting the losses.

If you are new to investing my suggestion would be to start with some blue chip stocks with reliable yield. If they drop off a bit, you know they will almost certainly recover quickly, and meantime you are earning a reasonable amount on your investment.

Others will probably disagree about this, but I think until you're comfortable with the market (is this ever really possible?) you could lose a lot of confidence if you go for speculative things or very volatile stocks and possibly lose some of your capital.

The ASX website has some very useful educational information on lots of different aspects of investing.

Let us know how you get on, and meantime, best of luck.

Julia

Hi today53

Hope you and anyone reading this had a relaxing and happy Christmas

To answer your original question, I always thought brokers can own their own shares. I was a client of JB Were for quite a few years and I recall some of my advisers occasionally mentioning they owned a particular stock. Without thinking I always assumed it was in their own names and not via a spouse, another family member, trust, private company etc etc.

I was happy with my advisers at JB Were but after I retired, and so had time to do my own research etc, I transferred all my CHESS holdings to Comsec and now use them as my broker. I still call my old adviser sometimes (off the record) if I need a second opinion on something. In case the underlying motive behind your question is whether one can trust brokers, my best advice would be to shop around until you find one you can trust and relate to. Like in all professions, there will be good ones and bad ones. Finding a good one is the hard bit. Whenever I was given a new adviser for whatever reason, I always asked for a face to face meeting asap with them so that I could put a face to the name when talking on the phone to them in the future and it also made it easier to ensure they knew what my objectives and risk tolerances were so that we didn't waste each others' time.

But if you have time to do your own research, fundamental/tech analysis then a reliable online broker is well worth considering.

Good luck and have a nice day

bullmarket

today53 said:

So my question is, can a stockbroker own any share under his/her own name?

cheers

Click to expand...

Yes.

But there are usually some rules in place governing frequency of trades. Some have a rule that you must hold a share for a minimum of 3 weeks after purchasing.

Cheers

I stand corrected.
I do remember Radge had a time frame restriction come to think of it.
I didnt think Andy Zip Zap from Reef who works for a broker was able to trade an account.
Nor did another Andrew who worked with tricom.

I agree with Julia. Trades, especially my first trade, which was based on broker recommendations and solid information in the AFR about them, led to a loss and I had to implement my stop loss rule and get out in order to protect my capital. Those that I've gone into based on my own research are doing well enough to keep me happy. Learn TA and FA, do your own research and don't enter a trade unless you're fully convinced it is right for you (and you're prepared to risk a loss if it doesn't perform). I use ETrade as my broker and base my decisions on my own research. Good luck!

ob1kenobi said:

...Learn TA and FA, do your own research and don't enter a trade unless you're fully convinced it is right for you (and you're prepared to risk a loss if it doesn't perform). ...

Click to expand...

hi all,

thanks for all the reply.

just like to refer to ob1kenobi's post, what are TA and FA?

cheers

TA Technical Analysis.
FA Fundamental Analysis.

Personally I think you should learn all you can on RISK.
Analysis in isolation is nothing more than opinion,the application of analysis and what you do when its wrong and more so when its right is the true way toward success.

When you can be right 80% of the time and still lose yet be right 35% of the time and still win---you need to know WHY and HOW?

When you can answer the above then your ready.

Somewhere on this forum Tech/a made an excellent post(s) which anyone who is interested in the markets ought to read. It's about positive expectancy and risk management. Understand that and you're well on the way to success in my opinion.

My personal opinion is that it's dangerous to trade any market without KNOWING what is reasonable to expect. What percentage of trades are going to be profitable? What is the maximum loss that's likely due to a run of losing trades? What's the maximum loss that any trade should make? What's a typical profit for a successful trade? How many trades should you expect to be making and how long should they be open for? How many trades should you have running at any one time? How often can you expect to have no trades open? Etc.

If you KNOW all these things then it becomes far easier to control your emotions which is a key to success in my opinion. If you KNOW that the loss you just made is something to be expected once every 3 weeks then you KNOW that you don't have to worry about it because overall you're trading to plan and you KNOW that the plan will make a profit over time. Likewise if you have no trades running but you KNOW that this is expected from time to time then you don't have to worry about it. As long as the results that you are getting, both in terms of the trades themselves and overall profit/loss, remain within the expected range of your PROVEN system which you KNOW is profitable then there's nothing to worry about and you just keep trading.

But if you don't know these things for certain then that's likely to lead to all sorts of emotional issues and poor decision making, the end result of which is likelty to be losses.

And I can't overemphasise the importance of risk management. It's no good having a hugely profitable system if you get wiped out completely by a run of losing trades. Once your capital is gone there's no opportunity for future profit so you MUST get the risk management right so that this doesn't happen.

All in my opinion only since I'm not a financial advisor etc. Find and read the original thread.

Hi everyone

Very good and appropriate post smurf1976

In addition to your post, if anyone is interested in a process on how to develop a written trading/investment plan, a must read imo is "Trading with a Plan" by Compton and Kendall.

It gives you a detailed step by step process to help one determine what criteria and parameters need to be included in their plan. It takes you through risk mamangement, preserving capital, determining position sizes, stop losses etc.

cheers, bullmarket

Once again, thanks for all the reply.

Just like to make sure that I understand what Tech/a and co's points.

You all are suggesting that Risk Management is as important as TA and FA, as it exposes the investor to a level of risk that one can manage and tolerate, financially and emotionally. As well as to learn to accept that market fluctuation, as Smurf1976 pointed out.

However, I understand that risk and return have a linear relationship, the higher the risk, the higher the potential return. With Risk Management, or only being expose to certain level of risk, does it mean that the investor can only be expecting a potential return based on the risk exposure?

Hope my thinking is pointing to a right direction.

today53 said:

Once again, thanks for all the reply.

Just like to make sure that I understand what Tech/a and co's points.

You all are suggesting that Risk Management is as important as TA and FA, as it exposes the investor to a level of risk that one can manage and tolerate, financially and emotionally. As well as to learn to accept that market fluctuation, as Smurf1976 pointed out.

However, I understand that risk and return have a linear relationship, the higher the risk, the higher the potential return. With Risk Management, or only being expose to certain level of risk, does it mean that the investor can only be expecting a potential return based on the risk exposure?

Hope my thinking is pointing to a right direction.

Click to expand...

That's fairly close to the mark, though you should build the nuts and bolts of all of this into a Trading Plan, which should include methods and types of analysis, how you will manage risk and money management strategies. The ASF website is rich in a wide range of topics. Tech/A has some interesting material on this website at the following links. Perhaps they're a good place to start.

An Introduction to Technical analysis of Stock Charts by Tech/A
https://www.aussiestockforums.com/forums/showthread.php?t=1338

An Introduction to Technical analysis/Money Management/Position $izing and Ri$k. By Tech/A
https://www.aussiestockforums.com/forums/showthread.php?t=1363

If you want to read a thread about what can go wrong, read the MUL thread. You'll need a bit of time to do this, it's quite extensive.

Good luck!

Hi today53 and anyone reading this

today53 said:

Once again, thanks for all the reply.

Just like to make sure that I understand what Tech/a and co's points.

You all are suggesting that Risk Management is as important as TA and FA, as it exposes the investor to a level of risk that one can manage and tolerate, financially and emotionally. As well as to learn to accept that market fluctuation, as Smurf1976 pointed out.

However, I understand that risk and return have a linear relationship, the higher the risk, the higher the potential return. With Risk Management, or only being expose to certain level of risk, does it mean that the investor can only be expecting a potential return based on the risk exposure?

Hope my thinking is pointing to a right direction.

Click to expand...

I think you've pretty much hit the nail on its head with your above post, especially by saying that higher risk equals only POTENTIAL reward and not necessarily actual reward. Higher risk also equals potential higher losses, especially for those that do not have a written trading/investment plan.

I am currently invested in 'lower risk' LPT's and infrastructure trusts and although especially LPT's have performed really well in the last 2-3 years, I'm not expecting the same high returns in the next 12 months.

In addition to ob1kenobi's suggested reading, imo "Trading with a Plan" by Compton and Kendall is a very good read on how to think about and put together a written trading/investment plan. It takes you through risk management, position sizing, stop loss/protect profit strategies and other concepts all helpful in developing a trading/investing strategy.

Good luck and best wishes in your trading/investing

bullmarket