“Workshops and seminars are basically financial speed dating for clueless people.” Douglas Coupland

Besides employer mandated retirement funds, I’ve managed all of my own investments in later years.  I distrust financial advisors.  Cruelly put, “If they’re so smart, why aren’t they rich and living on a Caribbean island?”

I got interested in the stock market early.  The idea of making lots of money and not working was appealing. I read a couple of books - popular then - about the “Dow Theory” – which, I think is largely ignored now.  (When was the last time you heard about a move in the Dow Transportation Index confirming the Industrial Index? – or, for that matter, even hear of the Transportation Index?)  The books introduced me to technical analysis – i.e., the mathematical side – of the stock market.  I had inherited a small amount (a couple thousand dollars) of money, opened an account with a well-known brokerage, and got assigned a stockbroker.  Following his advice I quickly lost half of it in the first year.  I questioned his motives.  Some of his recommendations just seemed to churn my account for the benefit of his much larger accounts - or at least for the commissions.  I started making my own decisions.  I didn’t get rich but didn’t go broke nearly as fast – and, more importantly – learned a lot.

I’m doing financial advisors a disservice.  I had an interest in the subject, especially the mathematical part and read a lot.  If you don’t have that inclination a financial advisor is needed – if, for nothing else, to understand the jargon.  “What is a callable preferred stock?”  “How is the price of a stock adjusted on the day it pays a dividend?”  “What is a covered call?”  “What’s the relationship between bond prices and interest rates?”  “How are ‘risk’ and ‘return’ balanced?”  But if you do have an inherent interest in learning this sort of stuff, a financial advisor is redundant.

I think there is one situation where a financial advisor is necessary – no matter what your interests.  If you were to win the lottery and have a huge amount of money, you can and should hire the best financial advisory people you can get.  The problem is too big for you alone.  They will earn their commission by making you better off and will have the incentive to do so.

The best two pieces of financial investment philosophy I learned are : diversify and there are no guarantees.  When I see an ad on TV where an investment is guaranteed, I cringe.  Oh, and the last thing, when someone promotes a stock for you to invest in for the “long-term” – “long-term” means until they are no longer around to be answerable.

© 2014 Lester C. Welch