Australian (ASX) Stock Market Forum

Mum and Dad Investors vs. the Professionals

If you were paying 4% upfront and 1.75% ongoing for an index fund then you were being seriously done over. Given the weighting of the top 20 companies in the various indexes, all you have to do is buy the top 20 shares according to weighting and you are very very close to having a ASX 100 index fund. All for the price of small brokerage upfront and occasional reweighting if you so choose.


It wasn't an index fund that's the thing, it was an actively managed fund. after really looking into it I noticed it was nothing more than what you wrote above. So where is the added value in an actively managed fund if the FA could have recommended STW or another index fund.
oh yeah the extra money they receive.

Not all FA are bad people.
But they need to run on a model which is different to selling insurance. IE: Sell as much as you can and who gives a **** about anything, just sell sell sell.


G
 
Skyquake,

That 80% accuracy is curve fitted and only works in specific time periods...
Or it averages down so it doesn't "lose" as often.

Umm.... I have great regard for your posts in this forum and always look forward to reading your comments, but I'm afraid the above one is totally wrong.

Taltan...

This is my point no-one has that level of certainty

....because you have not worked out how to do something does not mean it is not possible.

prawn...

brty and Mr J's comments are to do with systems that have 80% accuracy, in hindsight.
......correct

Just because it has performed like that in the past, does not mean it will if market conditions change.

What makes people think that something has not been tested/traded in different market conditions??


brty
 
OK read through it again; initially read it out of context and thought the 80% accuracy system was one for sale lol.

----------

Also with regards to those backtested systems, people often forget slippage. Not just the bid/ask spread but volume. If you're doing enough size you WILL move markets. Volume through the day may be good but POINT volume can be quite disappointing.
 
SkyQuake,

OK read through it again; initially read it out of context and thought the 80% accuracy system was one for sale lol.

Anyone would be mad to sell such a system, you only sell systems that don't really work. ;)
In regards to testing, I only use the pen and paper method based on observation from past data, yet forward test on bid/ask volume from live data. I deliberately use/look for gameplays that are not programmable.

Here is a conundrum to consider for those who don't believe that very successful systems (80%+ winners) exist. If 90-95% of all traders lose money, yet nearly all traders (my observation), use computer derived approaches, then where do the computers figure in trading?? Where do those who don't use computer generated programs/signals fit in to the scheme of things (using TA not FA).

brty
 
Why not just buy STW?

1. Fees, though could not find out what they are on a quick look - i.e the costs that are internal to the ETF. Audit, transaction costs, listing fees, balancing costs, profit for state street etc

2. Control over post tax outcomes
 
Here is a conundrum to consider for those who don't believe that very successful systems (80%+ winners) exist. If 90-95% of all traders lose money, yet nearly all traders (my observation), use computer derived approaches, then where do the computers figure in trading?? Where do those who don't use computer generated programs/signals fit in to the scheme of things (using TA not FA).
brty
Here is one strategy that made 92.59% winning trades and 7.41% losing trades. Simply brilliant hey. :cool:
 

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I would like to correct this on my experiences in the events leading to the GFC and the aftermaths.

While I'm not defending those financial planners, I think it is inappropriate to lay the blame on them for failing to predict the GFC and did not advise their clients to cash out just before the market crash. This is despite to the number of "warnings" out there.

The signs may have been obvious to those who have been "listening" to the right sources, but certainly not if most financial planners, or even the general public, have been listening to the mainstream news.
So you don't think financial planners/advisers should have been actively following all the financial news? I can't believe you'd seriously suggest that.
Fair enough that most average investors would not be seriously following daily events (though I find even that strange if they had money involved), but I'd have thought it a fundamental part of the job description of anyone involved in advising clients re financial matters that they be completely up with whatever is happening.

The potential crash was actively made understated prior to the events. This is clearly evident, the subprime crash would not affect global markets, blah blah blah, etc. Mainstream news were largely biased in being extremely optimistic about the future (and still is!) and to most people, they would have never foresee the crash with any certainty.
That's quite true, and constitutes my original objection to the published views of financial advisers and economists quoted in the mainstream media.
As far as I can recall, without exception they assured people it would all be just hunky dory.


Exceptions of course, if their financial advisors were the only few economists/bloggers, who predicted the crisis and actually did GAVE FIRM ADVISE to get out on a particular date or else.

However, very few financial planners would have the ability to take heed to those advises (let along actually FIND THEM) and then actually advise their clients to take actions.
Well, if that's the case, then imo they shouldn't be in the job of advising others.

My opinion is that it's quite unfair to blame them for their incompetence with the amount of misinformation and massive amount of media biases out there.
I disagree.

This along with all other corporate requirement of selling approved product lists, maintaining sales target, etc, etc, would have certainly hinder them from making such good advises.
(Try 'advice' )
Now we are probably getting closer to the reality of the situation at last.
I don't know the current, um, 'guidelines' under which most financial advisers are required to work by their head offices, but I can pretty well guess.
Let's just say your comment here pretty much reinforces my original suggestion that motivation of some FA's is not necessarily firstly the financial wellbeing of all their clients.
(With sincere apologies to those to whom this absolutely does not apply.)

At the end, it may have been obvious to some of us, but it certainly wasn't to a lot of people including ultra rich investors / high profile economists. Some of them never saw it coming. How do you expect a common financial adviser to do the same?
I've previously suggested that economists - many of whom were fulsome in their pronouncements that there wasn't going to be much of a problem - are not necessarily qualified to comment advisedly on share markets. That is not their brief. Ditto accountants, who should mainly stick to advising their clients about tax and related matters.

I've already answered your question "how do you expect a common financial adviser to do the same?". If many of us ordinary retail investors, simply by following the daily financial news, were able to think it pretty damn likely that things were going to be very unpleasant indeed, I simply can't believe that someone whose job it is to be aware of the financial climate in detail and advise their clients accordingly, should not be able to do the same.

As I said previously, no one could have, with absolutely certainly, predicted the timing of the crash, or the recovery, and the magnitude of it.
No, that's quite right. No one can pick what a market will do in a day's time, let alone in the next couple of years. But you can make a reasonable prediction, erring on the side of protecting capital if approaching retirement, if you simply objectively consider how global markets were falling along with all the economic bad news which continued to come every day.

It's certainly not the role of a financial adviser to make such predictions.
I disagree.

They certainly wouldn't do it either even if they have been sourcing from the right information. Fear of litigations if their predictions were not correct would have deter more advisers from making such predictions.
OK, that might be right. I have no idea. But why wouldn't they be equally at risk of litigation for failing to appropriately advise, as has clearly been the case in many instances?

That I agree, and my understanding of what financial advisers do is that they generally recommend asset allocation for retirees to be in the income area and less in capital speculations. Preservation of capital and focus on income.
But, for heaven's sake, that is my point. They failed to look to preservation of capital. You are contradicting yourself.

Of course, human greed bypass that. The clients could easily override their advisers' decisions,
OK, fine, but then the onus would have been on the client, and the adviser would have done his/her job.

and corporate need to sell financial products (growth funds) also affects it.
Ah, once again, we actually get to the reality of what is the motivation.
Thank you indeed for that final observation.
 
I've noticed that financial planners cop a pasting on this site, but never any mention of "stock brokers" copping any flak.

Or are they just included in the "financial adviser" catch all?

Considering that financial planners can allocate assets in to cash, mortgage, and property funds etc, a stock broker would be using mainly direct equities.

Therefore personal broker portfolios should have performed even worse than a planner who has the diversification of other asset classees.

Anyone come across any broker fallout through the GFC?

I know of one stock broker in a regional town who was afraid to leave his house for fear of being shot or beaten up.
That's a really good point.
When I first took an interest in the stockmarket, I felt completely ignorant so went to a full service broker. As I've previously said on this forum, out of the twelve recommendations from them which I accepted, ten lost me significant amounts of money at the end of a year. This was in a bull market.
That was when I decided I could do better myself.
It's my belief that many stockbrokers advising retail clients are influenced by the same corporate dictates that Temjin has referred to above re financial advisers. And that the results for the retail small clients can be considered 'collateral damage' when it comes to satisfying the requirements of big clients.


Thanks Julia for your detailed response. Yes, I make it too obvious that I'm a fa but I agree with many of your concerns.

Hindsight is a wonderful thing and cashing out for the GFC makes sense after the event. You infer from your comments that many informed investors (not using a fa) would have used this strategy. I wonder how many did. It would make a good comparison.
Let me ask you a question to perhaps put the issue into more perspective.

If you were the adviser, at what point in the GFC would you have told your clients to 'cash out'? Using the ASX 200 index as a guide and given it was at its high around 6800 sometime in October 2007 (was it that long ago?!) and reached a low aound 3100 in early march this year?
Without looking up charts which I honestly can't be bothered doing right now, I couldn't give you a distinct point in the index.
I sold almost all my p/f at the beginning of January 08, just holding onto a few which were still strongly trending upwards.

It's not possible for me to say what I would have done in any general sense if I were an adviser because obviously each individual situation would vary in terms of client risk profile, asset base, whether there was in addition a substantial amount already in cash etc. I would, however, have fully discussed the risks of holding on and also of the possibility that by selling to protect capital, there is always the risk of the downturn being less serious than I'd anticipated, and thus incurring of CGT. Then I'd give the client the choice.

What I'm basically on about is that as far as I can tell, few clients were given this advised option, with the risks and benefits pointed out, so that they could make an informed choice.

You are right in that the media was not short in providing all types of warnings and news about the events (sub-prime) leading to the GFC but I'd be interested in knowing if there was any particular news item or movement in the market which would have persuaded you to make the call to 'cash out'
No, definitely not. It was just the accumulated reports from the sub-prime on. I think I became more and more concerned as I realised the extent of the CDO's and CDS's out there when no one seemed to actually how many they were and what their potential eventual cost might be. Just the very number of 'unknowns' I think made me very nervous.

And assuming you did cash out, would you still be sitting in cash now or would you have entered back into the market at some stage? Again, You infer that you would be back in the market but I'd be interested in the reasons (I'm always learning!)[/QUOTE
I began moving back in March this year when the market began to move up, just tentatively at first, and then committed to more in June, and I have just bought more again in the last week or so. Still have a fair bit in cash because I'm not convinced we are fully on the road to recovery.

I'm quite happy to forego some profits at the bottom and the top for the sake of my own peace of mind. Can easily live on the interest from the cash deposits.

I agree with you that anyone close to retirement has probably been more affected but I would also argue that they should of had an appropriate investment strategy in place. For anyone approaching retirement (within 3 years) I would suggest a conservative approach of always having at least 3 years of income set aside in 'defensive' assets.
Yes, I absolutely agree. I've been coming from the point of view of having a SMSF where I can move things around to and from cash at no notice.
If, however, I were using a public fund I'd be doing as you suggest.

If the balance of their investments are in 'growth' assets then they have 3 years before they have to draw down on those investments. History shows that most markets recover in this time frame. The GFC will probably not fit this scenario but we'll have to wait another 12 months to see.
Again, I agree, and so far it's looking reasonably likely that that three year time frame will be OK.
Many of my retired or soon to be retired clients using this strategy would be down 5 to 15% on the highs of October 2007 which under the circumstances is not a disaster.
I guess they're the only ones who can reasonably agree or disagree with that, but yes, 5 - 15% at this stage is not as bad as 50%.
But possibly, if they'd cashed out, then re-entered, being able to then buy more shares when everything had fallen significantly in March or soon after, they would likely even be up on the November 07 high.

My definition of short term is 12 months or less and in the context of the point I was making I believe it unreasonable to expect fa's or anyone to be able to time market entry and exit points when investing long term.

There is a need for ethical fa's in this world but only because many people choose not to take responsibility for their own decisions or finances. Those that don't are usually the first to point blame when things go wrong.
I couldn't agree more.

Good discussion. Thanks Julia.
I agree, and reciprocate. Appreciate your clearly stated points and objectivity.

Rob.

Only in hindsight and only if you knew how deep the slump would be.

If the slump had been less and the rebound had been sooner, people who cashed out could have simply been left worse off than they started, because of massive capital gains tax bills. ... And then they'd have been abusing their financial advisor for wrecking their investments!

That's a good point Kremmen. There are also those clients (I had some) who voluntarily cashed out near the bottom (3500) and are still sitting in cash. Who knows, maybe the market will fall below 2000 so they can justify their decision.
Yes, that's always the risk you take. Obviously you can never be certain you're right, but you can consider all the available information and take a course of relative safety. It's always possible to buy back in.
Silly to sell out at or near the bottom. After a certain point, better to hang in there.
 
Apologies for the odd formatting above. Originally did the two posts all in one but it was too long to go through so I had to do a copy and paste, and that's how it turned out. Hope it's still understandable.
 
That's a really good point.
When I first took an interest in the stockmarket, I felt completely ignorant so went to a full service broker. As I've previously said on this forum, out of the twelve recommendations from them which I accepted, ten lost me significant amounts of money at the end of a year. This was in a bull market.
That was when I decided I could do better myself.
It's my belief that many stockbrokers advising retail clients are influenced by the same corporate dictates that Temjin has referred to above re financial advisers. And that the results for the retail small clients can be considered 'collateral damage' when it comes to satisfying the requirements of big clients.

Remember stock broking firms handle IPO's so the stocks they "recommend" to their clients can be the floats they have underwritten.

Not necessarily the right investment for the client's risk profile, but an investment that they are being paid to sell by the company floating or raising capital.
 
Remember stock broking firms handle IPO's so the stocks they "recommend" to their clients can be the floats they have underwritten.

Not necessarily the right investment for the client's risk profile, but an investment that they are being paid to sell by the company floating or raising capital.

Or one that is on the "recommended" list from their research department. Fell for that once but fortunately we got a five figure sum back as compensation when we complained.
 
I think its safe to conclude that investors who are properly informed and take the time to educate themselves are more likely to take control of their own finances as you have Julia and that's a good thing. The failings of many financial advisers is their inability or lack of desire to educate or inform investors in the fear of losing them as a client.
 
And if you think Financial Advisers are biased and focused only on themselves, consider how stockbrokers make money. Their only income is brokerage, and to earn brokerage they need turnover of stocks. Always be wary of stockbroker recommendations including IPO's.
The movie 'Wall Street' is a good example of how greed and stock manipulation are a real concern with 'real life' brokers.
 
Remember stock broking firms handle IPO's so the stocks they "recommend" to their clients can be the floats they have underwritten.

Not necessarily the right investment for the client's risk profile, but an investment that they are being paid to sell by the company floating or raising capital.
Exactly, Krusty. This is what I alluded to earlier. i.e. that the small retail investor can very easily become 'collateral damage' in the greater objective of keeping the big client happy.

Or one that is on the "recommended" list from their research department. Fell for that once but fortunately we got a five figure sum back as compensation when we complained.
Interesting, Judd. I'd also be keen to know more about this.

If you think about it, the principle is not so different from the whole Storm modus operandi.
 
that the small retail investor can very easily become 'collateral damage' in the greater objective of keeping the big client happy.
It's important to understand why the retail investors even get a look in. More often than not it's a combination of the following - liquidity for a large investor to exit, cost of capital via IPO is lower (ie. they charge retailers a premium) and the prestige of being listed. As a retailer, its worth going in with the understanding that it's not a level playing field and never will be.
 
doctorj, could you clarify whether your post is referring to just IPO's?
And do you actually mean 'retailers' as in companies who sell goods to the public, or 'retail investors'?
Sorry, but I'm just a bit confused by your post.
 
doctorj, could you clarify whether your post is referring to just IPO's?
And do you actually mean 'retailers' as in companies who sell goods to the public, or 'retail investors'?
Sorry, but I'm just a bit confused by your post.
It was written very quickly and very poorly.

By 'retailers' I was referring to retail investors. The message applies to IPO and post-IPO investment. Basically, retail investors are a cost to any company and there are only very limited reasons for a company to want retail investors at all.
 
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