Wednesday, July 29, 2015

Today's "Hot Stock Tip" ... Buy Stocks for the Long Haul ... Commissioned Stock Brokers and Short Term Oriented Financial Advisers Aren't Trusted By Individual Investors ... Nor Should They Be

In the long run, stocks are headed up, up and away. That's my take. In the short run, who knows where stock prices will go? That's my take too.

As Warren Buffett puts it, in the short term the stock market is a voting machine, and in the long term, it's a weighing machine. That's about as good a description as exists of the difference between short term trading volatility (as opposed to risk) and the longer term benefits of successful long term investing (where the real risk is not being invested).

So here's my longstanding and unwavering investment philosophy and approach: buy shares of solid dividend paying companies regularly and plan to own those shares for a long time. This individual investing approach tends to outperform other investment methodologies by a wide margin over time for one simple reason --- in a free market, long term ownership of the shares of solid companies and prudent risk taking are amply rewarded. If it were otherwise, nobody would take the risk of buying and holding stocks for the long haul.

So ignore the market's daily and weekly noises and try to pay no attention to what the pundits have to say about short term market movements.

For what it's worth, which may be nothing, my personal portfolio of stocks today pretty much avoids energy companies. And I'm staying away from materials, utilities and telecommunications stocks as well. I'm favoring (and have for a long time) large U.S. based pharmaceuticals, financials, technology, and industrial companies. I also own shares of a few consumer oriented companies.

Smart Buyers know that the short term price volatility of the stock market must never stop them from participating in the market's long term upward direction. So they know not to confuse volatility with risk, and especially the longer term risk of not being invested when the market increases in price. That's because they also know that over time, the unmistakable and clear tendency of share prices is to increase at a rate faster than inflation and that of other asset classes as well, including CDs, bonds, real estate, gold and other commodities.

Smart Buyers also know two other important things: (1) the more they pay for short term 'expert' financial advice from brokers, the less money their investments will earn for them over time; and (2) the more that they trade during volatile markets, the worse they will do over time.


So with all that as background, it's hardly surprising to hear that short term, transaction oriented, and commission compensated 'professional' stock brokers and related sales people aren't trusted by Smart Buyers.

Brokers Are Trusted Less Than Uber Drivers, Survey Finds is subtitled 'Among those who ranked lower: members of Congress.' The article tells about the lack of trust individual investors have in their financial advisers:

"Who are more trustworthy—financial advisers or Uber drivers?

More Americans seem to trust the drivers they hail on the popular car-service app than brokers, according to Personal Capital Corp., a Redwood City, Calif.-based registered investment adviser that manages more than $1.5 billion.

The firm surveyed 1,391 adults and found that more than half ranked drivers for Uber Technologies Inc. as the most or second-most trustworthy from a list of six types of workers, while 37% placed lawyers in the top spots. Only 31%, however, chose stockbrokers for one of their top two.

The three other groups that ranked even lower: advertising executives, used-car salesmen and members of Congress.

The survey isn’t the first to indicate that the financial-services industry has a trust problem. Earlier this year, a survey by public-relations firm Edelman indicated that trust in the financial-services industry around the world is lower than in almost every other industry. . . .

Personal Capital commissioned the online survey at a time when the U.S. Labor Department is weighing a new rule that would require advisers working with investors in 401(k) retirement plans and individual retirement accounts to be “fiduciaries” who put their clients’ interests above their own. Currently, securities brokers are generally held to a lower standard of recommending investments that are at least “suitable” for the individual. . . .

One question the survey participants were asked: “If you knew your broker was not required to provide advice that was always in your best interest, would you seek an alternative?” Ninety-four percent said yes.

“The big issue is trust—not only the fact that so many people do not currently trust their brokers, but also the fact that many who do trust them wouldn’t, if they knew exactly what was going on,” says Bill Harris, Personal Capital’s founder and chief executive."

Summing Up 

Commissioned stock brokers are salesmen, pure and simple. They are looking out for themselves --- not their paying clients.

These salesmen disguised as financial advisers are not knowledgeable and impartial long term investors, and Smart Buyers know that.

Smart Buyers also accept the reality of stock market volatility as an investing fact of life. They participate as objective long term investors and not as emotional short term traders.

Smart Buyers invest alongside experienced individual investors who charge little and have their own 'skin' in a portfolio emphasizing long term investments in dividend paying blue chip companies.

It's the common sense and 'smart' thing to do.

That's my take.

Thanks. Bob.

1 comment:

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