Larry, Moe and Curley were sitting in their favorite restaurant just off Wall Street having their usual 3 martini lunch and were discussing the day’s events and their client portfolios.
Larry:”I had 12 calls this morning from customers wanting to know why the market was going down”.
Moe: What did you tell them?”
Curley: “Yeah, what”, taking another gulp of his libation.
Larry: “You know, the usual. This is a normal correction and not to worry. I am watching your account. The market always comes back. ”
Moe: ”That’s the same BS I tell them. ”
Curley: “ I have more than 300 accounts and I can’t watch them except my 5 big traders. Who cares about the others anyway? My company won’t let me tell them to sell when their stock starts down and they believe the old saw about ‘hang in there for the long haul’. I blew out of all my stocks last week. Thank goodness. The market has dropped 300 points since then.
Moe: “It would be better for the customers if our company would let us tell them to use stop loss orders. "
Larry and Moe, shouting in a single voice: “Don’t say that or we’ll get fired”. They both bonk him on the head spilling his drink. “Nyuk. Nyuk. ”
Yes, it may sound funny, but there is more truth than fiction in that imaginary conversation.
Why don’t brokerage companies tell their customers to sell when the market is declining?
There are two reasons. First any large brokerage does not want to get on the bad side of a company. That company might have a public offering later on and they will definitely not be asked to sell any of the stock or bonds. This is where the big money is on Wall Street. The second reason is they don’t want the customer to have cash in his account. He might take it out. Brokers make money even if you do not trade. It is not much, but it does keep the pilot light lit.
Brokers also discourage customer stop loss orders because it is more paper work for them and then they do have to watch your account. Unless your account is high 6-figure or 7-figure you are not on the radar screen. Mr. Broker (an appropriate name for what he does with your money) has an average of 300 accounts and many have 600 or 700. As new guys come into their office they give them the little accounts.
When a broker passes his securities license he is given two manuals. One is SEC regulations that must be followed and the second is how to open accounts. There is no third manual on how to protect customers’ money or trade. Brokerage companies want their salesmen to follow the company line and push certain products. There is no thought of customer protection.
If your broker is Larry, Moe or Curley it is time to find a new one.
Al Thomas’ book, “If It Doesn't Go Up, Don't Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he's the man that Wall Street does not want you to know.