Monday

2013 Brokerage Firm Stock Market Targets

So here are the 2013 S&P targets from the biggest banks and brokerage firms.  Lets see how this works out.

Somebody has to be right given the extreme ranges from 1390 (1% loss) all the way to 1615 (14% gain).

Problem is that your stockbroker or financial advisor that works at one of these firms doesn't have to heed any of the advice given to them from the guys that make these targets, not that they should either.

Brokerage firms are smart, they promise nothing and deliver less.  Your financial guy can invest your money pretty much as he or she sees fit and this is great for the brokerage firm because it smoothes out the edges and the commissions and fees keep coming in!

Just remember that it costs money to have someone 'watch' your money.  And even 1% adds up over time.  You can and should invest by yourself and for yourself.

Wednesday

Barron's Perfect Timing Again

I have a copy of the current issue of Barron's which is a weekly financial newspaper published by Dow Jones.

Barron's has an uncanny nack for picking the worst possibly time to cover a story.

This issue's cover is about the best 25 dividend funds, REALLY?!?!

In past blogs here and at How The Investment Business REALLY Works and How Boomers Should Invest NOW, I have discussed how the infatuation with dividend stocks is getting dangerous.  I have said in the past that stock dividends are NOT a replacement for fixed income investments.  I have said that stockbrokers and financial advisors will blindly follow the lemmings over the cliff with your money!

So Barron's perfect timing strikes again (in my opinion) probably picking the top for dividend funds and dividend paying stocks with their cover and article.

Stay tuned and be sure to check out my newsletter, the INVESTING OPINION.

Thursday

Why Your Financial Guy Loves Selling Bonds

Don't get me wrong, bonds are a good investment and should be a part of most portfolios but there is a dirty little secret about bonds that investors do not know.

Your financial guy loves selling you bonds, why?

Because there is a hidden commission in bonds that you do not see.  It is called a concession and on every bond bought or sold, your financial guy gets paid but you don't see how much!

That is gold for a stockbroker, financial advisor, wealth manager, financial planner, whatever they want to be called today, because it doesn't appear to be churning.  

Recently, with interest rates decreasing which means prices increase on anything fixed (like a bond), you can be sure that your financial guy will be all to happy to sell your bond (that you bought only months ago) for a small profit for you AND A LARGE CONCESSION FOR HIM.

Ever wonder why you buy and sell bonds?  Now you know!

Ever wonder why brokerage firms earnings reports are filled with great news from bonds / fixed income?  Now you know!

PS.  Bonds may not necessarily be a good investment in 2013 and beyond since interest rates are likely to go sideways or higher which means anything fixed, like a bond, will decrease in value.

Wednesday

Just 11% Of Hedge Funds Beating S&P500

As you know from my blogs including this one and many books, I am not a fan of hedge funds.  To recap - you give trading authorization to someone so that they can gamble with your money.  If they win, they get 20% of the gains.  Wow.

According to Goldman's research to date, just 11% of hedge funds have beat the simple S&P 500.

To date, the S&P 500 is up just about 12% and the average hedge fund is up 4.6%.  I am not sure if that includes their hefty 20% fee for managing your money so wisely :(

To make matters worse, 20% of hedge funds are negative for the year and these are the geniuses that many pension funds trust their money to invest and do well.

Lastly their two biggest holdings are Google and Apple, while that's good, they are both winners, it's most likely they recently bought them and are not and have not been long term holders which doesn't bode well.

Thursday

What Is #1 For Stockbrokers?

Right now, securities firms don't have to put investors' interests first.  New regulations may change that—and Wall Street isn't happy.....

For those of you who have read my blog or book, this comes as no surprise but for those that haven't, I hope the title is a little shocking.  You can read the entire article here.  

Bottom line is that stockbrokers do not have to put their clients interests first, yes, you read that correctly and is why I have been pounding the table encouraging investors to learn how to invest for themselves.

Its actually quite easy and you'll know that the person who is handling your money is the person who cares about it the most, YOU!

Why Your Financial Guy Won't Sell Your Bonds

With current yields on bonds at record lows which translates to record high prices for bonds, you are probably wondering why not sell and take a profit?  Why your financial guy won't sell your bonds?

Let me tell you why.  Bottom line is that most stockbrokers or financial advisors get paid via fees and not commissions.  They get paid for money that is invested.  If they sell your bonds and go to cash, then they do not get paid at all.
the bond bubble of 2012 is about to burst!

Cash on your stockbrokers books is useless to them which is why you are arm twisted to be fully invested all the time, whether it is stocks or bonds or mutual funds.

Remember that in order to collect the wrap fee, you, the client, must be invested in something and cash does not count, after all, no one is stupid enough to pay a fee for someone to watch their cash!

Do yourself a favor and learn to invest for yourself and by yourself and put the person who cares the most about your money in charge of it - you.

You can start by selling your bonds for a profit now, sit on cash and wait for the bubble to burst and then you can buy your own bonds without the additional fees and commissions when they yielding something more reasonable.

Additionally, if you hold your individual bonds to maturity, the coming increasing interest rates will lower the price of your bond temporarily but you will get your principal back.  If you own bond funds, watch out, not only because the coming redemptions will cause the fund manager to sell bonds early but most bond funds use leverage which will magnify your losses.


Brokerage Firms Costing Investors Billions A Year

This is an article from the New York Times by Nathaniel Popper dated May 6, 2012 which just reiterates what I have always said.  Few people are on the side of the individual investor.  Its not uncommon for clients to never make money with an advisor before they move to the next one and this article points out just another reason.

The rules governing Wall Street generally force stockbrokers to seek out the best prices for clients who pay them to buy and sell shares.

In recent years, though, brokers have had another enticement that can pull them in a different direction: payments from stock exchanges in return for sending them business.
The practice has attracted criticism from several industry participants and former regulators who say the so-called rebates that the exchanges pay Wall Street firms could give those firms an incentive to profit at the expense of investors. Now a new study using industry data says that the rebates could be costing mutual funds, pension funds and ordinary investors as much as $5 billion a year.
The 75-page study, being released this week, was written by Woodbine Associates, a financial consulting firm that does business with players on all sides of the issue. Woodbine said the report was done independently, without support from industry participants.
Some financial firms criticized Woodbine’s calculations and said the cost to investors was overblown, but did not dispute that the potential for a conflict of interest exists.
The study estimates that investors lost an average of four-tenths of a cent on each of the 1.37 trillion shares traded last year because of orders being sent to exchanges that were not offering the best final price. Stocks are sent to exchanges with inferior prices for reasons other than rebates, and the study’s tally includes those losses, but the authors say that the primary reasons for bad routing decisions are the rebates.


In one hypothetical situation, a mutual fund might ask its broker to buy one million shares of a major company. The broker sees that one exchange has a seller willing to part with the shares for $100 while another exchange has a seller offering $100.01 but is also offering the broker a tenth of a cent rebate per share. The mutual fund could end up paying $10,000 more than it needed to, while the broker would keep the $1,000 rebate.
The report puts a new spotlight on one of the most controversial practices that has sprung up as a growing number of exchanges have battled for the business of high-frequency traders and banks.
The losses to investors are usually gains for those high-speed trading firms and banks that factor the rebates into their automated trading strategies, and who seek out the trades of less speedy and informed traders.
In March, another financial consulting firm, Pragma, issued a report that drew attention to the conflict of interest created by rebates. Last fall, Jeffrey Sprecher, the head of the IntercontinentalExchange for futures and options, said at a conference that he would “have the regulators outlaw maker-taker pricing,” another name for the rebate system.
The most prominent criticism came in a 2010 report by two former chief economists at the Securities and Exchange Commission who said that “in other contexts, these payments would be recognized as illegal kickbacks.”
One of those economists, Chester Spatt, said that his group’s report initially generated conversation among regulators but was then overshadowed by the so-called flash crash of May 2010, in which stocks experienced a sudden and irrational plunge. The S.E.C. raised questions about the rebates offered by exchanges in a policy paper in 2010 but has not acted on it since.


Mr. Spatt said in an interview that the problem caused by rebates has not gone away and has most likely intensified as other sources of revenue for brokers have shrunk.
“Presumably many are acting in a self-interested fashion, and the self-interest leads to a lot of distortion,” said Mr. Spatt, who is now a professor at Carnegie Mellon. The report was sponsored by the trading firm Knight Capital.
Even before being officially published, the figures from Woodbine sparked a debate about the proper way to calculate whether clients were getting the best price in a given trade. According to Bill Conlin, the chief executive of the independent brokerage firm Abel Noser, the Woodbine report includes only one of the many costs that determine whether a broker’s client makes money, and that cost may not be the one that hurts investors most.
“There are little pennies here and there all along the line. They do add up,” Mr. Conlin said.
On the other side of the debate, high-speed trading firms say that the increased levels of trading promoted by the rebates lower overall transaction costs for investors. And exchanges say the rebates are necessary to attract people who will make markets with ordinary investors, providing those investors with the ability to liquidate their holdings whenever they want.
“We believe it’s important to incent market makers to provide liquidity so that all traders can buy when they want to buy and sell when they want to sell,” said Randy Williams, a spokesman at BATS Exchange, one of the nation’s four large stock exchange companies.
The laws governing exchanges are meant to ensure that the rebates do not result in customers getting a worse price for their stocks. If an exchange has the best offer at a given moment, other exchanges have to send orders there.
But in today’s high-speed fragmented markets, there are several instances in which this rule does not protect investors. For instance, if a broker sends the first 100 shares of an order to the exchange with the best price, the broker can send the rest of the shares to another exchange where it will receive a larger rebate. Several academic studies have found that the cost of executing trades is at a record low. But Matt Samelson, the founder of Woodbine, said these calculations have not factored in the “hidden prices” that can be incurred when investors don’t get the best price.
When the New York Stock Exchange was the nation’s dominant one, it did not need to pay traders to use its floor. Both buyers and sellers would pay the exchange for the opportunity to execute a trade. In the 1990s, though, some upstart platforms for trading, like Island Exchange, wanted to attract buyers and sellers and began to offer payments for brokers who brought them orders to post on the Island platform. When other traders wanted to take the other side of those orders, they would pay Island, and Island would make the difference between the rebate and the payment it received.
The Big Board and Nasdaq initially resisted this model, but as they lost market share to competitors, they eventually adopted it.
Nasdaq paid out $306 million in rebates in the first quarter of this year, or nearly half of its revenue. That was a greater proportion than that paid by the New York Exchange. All 13 of the nation’s exchanges offer some sort of rebate program. Brokers can pass rebates along to their clients, but rarely do, according to industry participants.
The rules governing rebates are incredibly complex, ensuring that no one exchange has a regular edge. But the brokers are constantly tweaking their programs to ensure they are paying the lowest possible prices to execute customer trades, and receiving the maximum rebates.
Woodbine’s method of determining the cost of this to investors involves complex calculations of how frequently investors get the best price on each exchange.
Tim Christiansen, who manages stocks at Sawgrass Asset Management, said that the highly technical details involved in every trade made it hard to draw industrywide conclusions on investors’ costs. But in his own work, he has noticed that certain brokers have sent his orders to exchanges where he did not get the best price.
“In an ideal world, a router would simply look for the best execution,” Mr. Christiansen said.

Monday

Greg Smith Leaves Goldman Sachs

On the way out the door, former Goldman Sachs trader Greg Smith airs his feelings about his former firm on the opinion page of the New York Times here.

Its very interesting and to me personally, not one bit surprising.  I have been saying the same thing for years.  Calling clients 'muppets', 'joe six pack', 'pikers', there is nothing new here.

The only surprising thing about Greg Smith's admission is the reaction!

Tuesday

How Your Stockbroker (financial advisor) Gets Paid

Your stockbroker (financial advisor) gets paid in many ways but the four most common are discussed here in this short 14 minute audio clip.  Let me know what you think.  Visit Apple iTunes and listen to any episodes for free at http://itunes.apple.com/us/podcast/howtheinvestmentbusinessreallyworks/id504639704.

Wednesday

Facebook IPO

It was announced today that Facebook will be offering shares to the 'public' in an initial public offering (IPO).

As is always the case with IPO's, if you can get your hands on it, you don't want it and vice versa.

The sad truth is that the regular investor will not get to participate in the 'free' upside that is most likely to happen on the first day of trading.

The shares will be distributed to friends, family and traders (as pay back) so they can 'flip' the shares in the first few minutes of trading for a virtually guaranteed return with almost no risk whatsoever.

I loved IPO's, hidden commissions, great concessions, paid back friends and associates with the winners and handed my clients the losers.

Sad to say, nothing has changed!

Monday

Options Are Your Stockbrokers Best Friend, Not Yours

Stockbrokers and financial advisers make their living off your assets.

Stockbrokers are continuously looking at the accounts they 'manage' for ways to create commission, they of course, would like to make you money as well but that is not #1.

Enter stock options, this is the stockbrokers commission gift that keeps on giving.

Options are a contract that allow you buy or sell a particular stock in the future at a particular price.  You can speculate with options (without owning the underlying stock) or you can take the other side of the trade by 'writing options' (when you own the underlying stock).

Statistics show that speculating with options is a fools game with very few participants making money.

Buying the stock and selling the call option strategy is supposed to create income with little risk and it does that but it does even more - for your financial guy!

What it also does and your stockbroker won't tell you is create a nice stream of income for the stockbroker, he makes commission when you buy the stock, sell the call and sell the stock (or write another option).

As always, be careful of your financial guys intentions.  Ask yourself, should I invest in stock options?  If he asks you to start 'investing' with options, watch out!

Saturday

Iraqi Dinar Revaluation Is Bogus

The rumors have hit a fever pitch lately.  I heard the other day from an 80 year old grandmother that she was buying Dinars to get rich.

REALLY?!

The scoop is that after the fall of Saddam's Iraq, the Dinar become mostly worthless.  George Bush said that the Iraqi war would pay for itself a hundred times over.  I believe he was speaking figuratively, not literally.  Some conspiracy theorists took and take that to mean that the US will profit when the Iraqi Dinar is revalued and supposedly, the US and China have a stockpile of notes.

And some people, you may call them investors or speculators, I wouldn't, think you should buy Dinars now hoping to profit along side the US and China.

There is no free lunch.  If you want to send your money to someone and hope that they send you actual Dinar notes and not forgeries and then hope again that somehow there is a revaluation and if there is, that somehow, it works in your favor, go ahead, I'd rather take a nice trip to Las Vegas with the money and at least get a comped meal out of the deal.

If you think this is a good idea, you should read my book.  Learning what not to do is just as important as learning what to do if you intend to make money investing.

Thursday

Dirty Stockbroker Trick

With 2011 behind us and looking now at 2012, some people will start to look at their portfolio to make some changes, maybe decide that they can invest for themselves.

As a stockbroker, the dirty trick that most use to keep clients on board is to compare results but we weren't comparing apples to apples.

Here is the trick and it would work excellently this year given the results of the stock market in 2011, here is what I mean.

In 2011, the S&P 500 lost under 1% but with dividends, it actually gained 2.1% so make sure that you know that when your financial advisor calls you to tell you that he made 1% and the 'market' lost money that you realize that he is not telling you the truth that you paid for nothing, that you could have done better by yourself by buying a simple index fund.

Same thing with the Dow Jones Industrial Average which gained 5.5% but with dividends 8.4%.  You get the point.

An educated investor is hard to fool and take advantage of, that's you!