Vancouver Investment Advisor Ritch Wigham

So you want to do it yourself..

It is a function of our time that a great many people want to “do it yourself”.  The classic DIY of our time is to be your own broker. People have always wanted to DIY, whether it was renovating your home or fixing your car, the human brain relishes in the feeling of accomplishment and satisfaction that you get from doing it right and doing it yourself. Great for an oil change or painting your bedroom, what could possibly go wrong?? Right? Well usually not too much. Nowadays if we don’t do these things on our own we are willing to pay someone to do them for us. This is for convenience, and some people feel, it saves on their precious time, the time that none of us seem to have enough of. It certainly isn’t because we can not do them ourselves.

So why do so many people seem to think that they can take care of their investments better than a professional can?

From the people I have talked to it stems mostly from a dissatisfaction with their past investment advice. Why is this? The answer I get is that if they happened to lose money it was the” broker didn’t understand what I wanted” or just bad advice. If they had “made” money it didn’t seem that enough had been made or that the profits weren’t large enough. There then can only be two reasons for this to occur. Bad broker or bad client. It can not be only the brokers fault if it was not communicated as to the desires of the individual who has opened the account. It certainly is the brokers responsibility to have asked the pertinent questions as to the objectives of the client. If there is a problem it must be discussed. It seems to me that clients will very often say” I just did what my broker told me to do”. That is fine as long as what is being done was in the context of what your objectives were. Ask yourself for example, Would I have bought that junior miner if I was in charge of my own account? If the answer was yes then it must also be yes for your brokerage account. If the answer was “no” the first thing you should ask your broker is why would he/she recommend such a stock when you had made it clear that risk such as that, was not what you had intended!

When I pose that scenario to people that do it themselves I invariably find that yes, they bought that junior miner, and yes they lost money, or made a bit, and no it would not fit their profile as explained by themselves for their objectives.

What’s my point? You cannot blame someone else if you were willing to assume the risk. If you feel that the risk was not appropriate you must decide this before not after the fact. I know plenty of people who maintain two accounts for this very reason. One for long-term investment objectives and one for more immediate speculative reasons. This allows them to be more objective. It is also a very good idea to separate these accounts. Many people try and do it all themselves and find that they cannot separate the two, or combine them and find that neither is satisfied. A very good reason to have either one or both with a professional broker who can understand the objectives of either account as it is laid out by the client. Set out the objectives and understanding for the account and it should be clear what is desired and consequently recommended for that account. This is like buying a bouquet of spring flowers all pretty and lots of colours, when what you really wanted was a dozen roses for your girlfriend. Initially it might be pretty but becomes disappointing as the individual poesy’s die off. Should have bought the roses!

Costs, commissions, charges, fees, call them what you will, nothing is for free. There is certainly the feeling by a lot of the DIY crowd that they can do it a lot cheaper than with a broker. I challenge this. First if you are a very active trader you will always find that a fee structure can be negotiated that is acceptable to both parties. If you are not as active isn’t it worth paying a bit to someone to make sure that your instructions are followed and monitored on your behalf? Almost all the traders I know that actually have a profession and are not brokers or have the time to sit in front of a screen all day, use a broker. Why, because they don’t change their own oil either. It is just more efficient and ultimately they realize that they save way more money paying me then they give up trying to do it themselves. From proper execution to the knowledge that they will be immediately made aware of what is happening with their money when they are otherwise involved with their daily lives. As opportunities arise they can also be made aware of these. Private placements, underwritings warrant issues, all of these are much more efficiently dealt with by a broker. Unless, if all you are interested in is mutual funds (which may be cheaper to acquire through a broker than online) you still require a broker to really be able to access these products.

Lots of people enjoy surfing the web to find the next great idea. How many of those same people understand what they are really looking at. Even if you do it is just good sense to be able to get a second opinion. Some of the best ideas I have related to my clients have come from clients themselves. After I have gone over the pros and cons and made the assessment as to who it would be appropriate for. Great ideas have to come from somewhere, how many have the time too really check the ideas out. Let alone asses the potential risk that it may carry. There is so much on the web now that if you don’t understand the processes for publicly traded companies you are inherently at a disadvantage before you start. It is very hard to distinguish sometimes between a fly by night Exploration Company and a legitimate explorer with properties of merit. When even the good ones have a relatively low success rate you must be able to access a second opinion before you start. Most brokers have access to this type of expertise whether it is mining, high tech or bio-medical. If you don’t know the risks you should always seek out advice from a person who is a professional or has access to an expert in the field. It is called being prudent. Advice costs, negotiate your best deal, and find a broker who understands your needs.

Talk to you soon

Ritch