On Market Professionals

She is a new reader and wants to know if I am a professional, or just very knowledgeable. I can’t answer that without getting aw shucks hangdog, shyly digging the toe of my sneaker in the dirt. She implies that if I were a professional, then I certainly would be knowledgeable. I know firsthand that it ain’t necessarily so. If we say that a person duly credentialed in a field of endeavor is a professional, then I was one of those. But, for the first fifteen years as a broker, I didn’t know squat. Nor, by and large, did my peers.

This is not so unusual. An architect friend once said that, at the start of his career, his preceptor told him he wouldn’t be worth a flip in his profession until he was fifty. Most fields are that way. Expertise is gained over time and the most useful information comes from mistakes made in the practice of a profession.

Brokers and financial advisors are generally regarded as professionals. Well, they are. They are professional salespeople, responsible for helping their firm distribute securities to the investing public. The bias that inheres to the occupation is to encourage ownership of securities. Their legal responsibility to the investor is to see that the recommendations are suitable to the their risk tolerance and financial circumstances. For the most part, this responsibility is properly executed, along with the disclaimer that past performance is no guarantee of future results.

The industry  has no mandate to communicate the market risk to their clients. On the contrary. They will insist their clients remain fully invested beyond the bubble until the bear market has wiped out most portfolios. The firm where Cindy and I hold our money market accounts just sent this missive out: “Don’t let short term gyrations in the market keep you from achieving your goals. Stay invested!”

But then, the clients are full participants in the charade.  The investment crowd doesn’t come in the door until valuations are through the roof. And, even if they are duly warned, they want to believe they will succeed. Social psychologists Khaneman and Tversky noted that lottery ticket buyers expect to win, despite knowing that the odds are stacked against them. Investors also expect to win, and are damned disappointed when recommendations lose money.

Securities sales professionals finally grow cautious after most of the damage is done. Then they remain bearish on the market for years after the bottom has come and gone. This may be difficult for you to believe, so print this essay out and decoupage it to a cocktail tray. You will enjoy passing it around when you are finally pulling the cash out that you were accumulating since the top in 2000 and are putting it into the market while your broker is begging you not to do it.

Brokers and advisors suffer from the same malady as their clients: they are human and subject to the prevailing social mood in matters of uncertainty. To do well in markets we have to think upside down, and it does not occur to us to do this until after we’ve lost a lot of money.

Observations

Master trader, Pete Steidlmayer used to say, “It’s gotta go down before it can go up!” Meaning, of course, that markets always interrupt their primary trend with reactions in the opposite direction. In the present instance, the primary trend is down, and the decline from the May top has taken place in a five wave sequence, so we should be prepared for a reaction rally for a month or two. When the trend turns back down, the market should crash to levels not seen since the mid eighties. Given that we are in the midst of a deflationary depression, it will be a grim time for investors and for their professionals who encourage them to remain invested  in stocks, junk bonds, gold, real estate, copper, wheat, orange juice, cotton, cattle, foie gras……

Cheers,

Rod

The author makes no representation as to the accuracy of the quoted material, but believes the sources to be reliable. No one should consider any part of this presentation as a recommendation to buy or sell any securities whatsoever.

 

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