CHOOSING A BROKER

If you want one.

By Al Thomas

And I don't recommend any broker with whom to trade who will be giving you advice on what to buy and sell. When a broker speaks it is a eulogy for your money. My definition of a broker is one who makes you broker.

The reason I say this is that when I owned my brokerage company I hired and supervised over 300 brokers. The actual number of good traders I could count on one hand and have fingers left over.

Let's understand that a broker is hired by a brokerage company for one reason - to generate commission, not to make you money. He is trained to analyze stocks or mutual funds, but not to protect your capital. Pitifully, he thinks he is. They never tell you to sell before a stock falls to 50% of its value. Most of the time brokers are left to themselves as to what they recommend to their customers, but there are many brokerage houses that will insist that they push some particular stock of the day or new Initial Public Offering (IPO). Many times he has a quota - and you're "it".

Don't deal with a relative. Do I have to explain this?

If you live in a small town, don't deal with anyone who also lives there. You don't want everyone knowing your business and anyone in that local office can see your account if they want to.

The average broker has 300 accounts and you know those with six and seven figure amounts are the ones he calls. Those people with less then 100K seldom get attention. Understand you are on your own which in most cases is best.

Be careful of any broker who advocates fading the market. I can hear him now, "This stock has gone so low it has to come back". This is a death wish for your money. Bottom pickers end up with smelly fingers.

A broker who calls you and says he has a "system" must be highly suspect. If that system is so good then why is he willing to share it with you? He should be independently wealthy by now. Be suspect of any broker who calls you out of the blue with a "story". I don't care how good it is you don't know this "Billy Sol". These guys refer to you as mushrooms. I wonder why. Maybe because mushrooms are grown in the dark and fed horse manure.

Never trade commodities with a stockbroker. There is a world of difference in trading stocks and commodities. Stockbrokers don't think fast enough. You shouldn't have someone who is used to driving a kiddie car trying to handle a Formula One.

Make any broker prove what he says. Get references. What you want from a brokerage company is proper execution of your order at a low price, not advice. Your best bet is a discount broker because they are not allowed to give you "advice".

Excerpted from forthcoming book "If It Doesn't Go Up, Don't Buy It!"

Copyright Albert W. Thomas All rights reserved. Email: info@mutualfundmagic.com