Proper investment relationships and objectives, is the key.
It is the responsibility of every rational investor to establish and maintain a good investment relationship.
Here is a first of a few more to come on this important subject.
Engaged and thought-out investment relationships with professionals who help you select and trade stocks is imperative to long term superior performance. Unfortunately most Thai brokers do not and cannot offer this added service with any depth. The reasons for this are often camouflaged and not well understood by most retail investors. The broker must be focused on transactions and trading ideas, not managing wealth or finding great stock values.
The first thing to realize is that broker transaction commissions have dropped considerably over the past 10 years and likely to drop even more in the future, along with long distance phone rates and travel agent commissions. Broker buy/sell transaction costs have at least dropped by half, as compared to just a few years ago. As a result it is unrealistic to expect the kind of service as compared to the past.
But this is not necessarily a negative, even to the beginner stock investor. At the same time the internet has empowered "anybody anywhere" to reasonably obtain solid & reliable objective information on his/her own time. Stock transactions costs have been reduced and so at the same time it is now the individual's responsibility to seek out more and new reliable information sources.
A modern proper investor relationship often involves more than just one person or company. It starts with the "plain vanilla" broker who does (and should do) what they do best, which is to buy or sell the stocks desired -at the given price. In this proper view the broker is simply the person who goes to the market to transact exactly what the client ordered. In fact, this is the real definition of the word "broker". Think of it as you being a kitchen chef. You prepare the meals from the ingredients at hand. The broker is the person who goes to the fruit & vegetable market for you.
In past times, a broker could be counted on much more than just "buy this" or "sell that". But since their commission rates have collapsed, this view is no longer realistic or fair -nor desirable. Because just as broker transaction costs have collapsed, inversely so has the brokers urge to transact ever more, to make up for this new reality.
New stock brokers are more eager than ever before for you to trade, trade, trade -and maybe on the SET more so than most other markets. Since the costs to trade are lower, this often results in markets becoming more volatile, these nouveau brokers feel this is a sensible evolution….a logical next step, just like more exercising for health and weight control? Right? No wrong.
Ah those brokers.... Below is a picture of Campell Center, Dallas TX. USA. Here is where I first worked for Merrill Lynch, Dallas during the second energy crisis in the early 1980's.
The first thing to get right is to set strict investment objectives, which include not mixing trading with investment accounts and establishing some disciplined parameters.
If a more speculative trading account is desired, then this must always be separated from your long term investment account. Other questions should be answered. Like when can the broker best call and under what circumstances. Do not let the broker manage you, -you must manage the broker! For example, if you bought a stock in an investment account, the broker has no business at all calling you if the stock is up a point or two. But, if you gave your broker some mental stop loss orders, it would be imperative that he/she does call. (Note, the SET does not have automatic stop loss orders).
Another point to carefully consider is on what basis will you engage your broker in investment or trading decisions and ideas, if at all? As stated, I think more and more brokers should just be used for good execution, and basic back office account information.
If you start accepting investment or trading ideas by your broker, how far will you let these opinions make up your stock selections. Beware of mixing trading and investing. Always ask, where does this lead to? If not careful, it will lead to shares which go down becoming by default long term investments -and good ones which go up, get sold out as trades. In time you have a portfolio of laggards!
Next time around, I will address some more about broker-traps, fallacies and "where does this lead to" situations to be aware of.
Paul A. Renaud.
