THE CASH-KING PORTFOLIO
Managing Your Broker
Your money is your responsibility
by Phil Weiss (firstname.lastname@example.org)
Towaco, NJ (Dec. 8, 1998) -- Following up on Tom's excellent Eyes on the Wise series, tonight I thought I'd continue the discussion by sharing some of my own experiences in dealing with brokers.
When I started my first job after completing college in 1987, I got cold calls regularly. I didn't have a lot of experience with investing at the time, but I was fortunate in that my educational background at least made me familiar with the terminology and how things worked. I knew that I had to settle my personal finances before I could begin to really concentrate on investing. However, I thought that it would still be helpful to start cultivating a relationship with a broker so that when I was ready to invest, I'd be working with someone with whom I felt comfortable.
Anytime a broker gave me a call I'd give him a quiz. If he wasn't able to answer my questions, then I figured he wouldn't really offer me much help with my investments. Looking back on it and knowing what I know about these salesmen now, I'm not surprised that it wasn't very easy to find someone that could pass my quiz. Finally, someone passed, and believe it or not he even spoke of building a portfolio that started with a base of solid stocks to be held for the long term. I decided that I would open an account with this individual and his firm.
This decision also made the cold calls that I continued to receive more fun. Since I'd chosen a broker, I really didn't need to entertain calls from others. When they suggested stocks in which I had no real interest in purchasing, I'd ask them questions like, "If all your stock ideas are so great, why are you bothering calling people like me to open an account?" Then I'd tell them that they ought to just invest in all their great ideas on their own. That way they could make enough money to stop having to call people like me.
I even remember one call that was a lot of fun for me. One night I received a call from someone with a familiar name. Those of you that have read this column for awhile know that I attended Duke University -- I'm happy to once again see the Blue Devils are contenders for the national championship this year. This particular call was from Jim Spanarkel of Merrill Lynch, who was also a starter on the 1978 Duke team that lost in the NCAA Finals to Kentucky. As a matter of fact, it was watching that team play that first led me to consider Duke as a college choice.
This ended up being the longest call I ever had with a broker that had cold called me. Of course, we talked about quite a number of things besides investing. We talked about Duke, collecting sports memorabilia, his other job as color man for Nets games, and a whole host of other topics. I really did enjoy that call.
I can't say that once I selected a broker I felt comfortable with everything and it went smoothly from day one. I say this despite the fact that I always insisted I be given some materials to review before I would make any investment decision. The problem was that the level of the research that I did was not anywhere near thorough enough. Besides, it wasn't like I was investing all that much at the time anyway. As I mentioned above, my top financial priorities at that time involved paying off my school loans and saving money to be used as a down payment on a house someday.
However, for a while, not everything worked out quite the way I expected. The long-term stocks that I bought really didn't have much growth potential and all have now been sold. As for the other purchases, there were a few that made me some money, but there were a couple of dogs as well. I also had no idea how my investments were performing relative to any type of market index whatsoever. The worst purchase I made at that time was when I bought stock in America West Airlines, primarily because it was a takeover candidate. I learned a valuable lesson on that one. The company ended up filing for bankruptcy, and I lost most of my initial investment. That was also the last stock I bought due to its potential as a takeover candidate.
A short while after that loss, I was fortunate enough to improve my financial situation to a point where I could consider more serious investing. One thing I had not thought of in the context of my broker was that we had become friends. You see, our relationship had developed over the years to the point where he had started referring people needing help with their taxes to me -- I even prepare his personal tax return. I realized that there was some danger to this kind of relationship, so I decided that I had to put that aside when it came to investment decisions.
This led me to a few conclusions. The first was that because of our professional relationship I would not close the account that I had with my broker. The second was that I also realized that although I liked my broker, I needed to take more control when it came to analyzing potential investments. The third was that I would also open up an account with a deep discount broker as well as some Dividend Reinvestment Plan accounts. The majority of my stock purchases are made through these accounts; I very rarely purchase stocks through the account that I have with my broker.
Now the parameters of our relationship are much different than they were. Anytime I buy a stock in my account with his firm it's my idea not his. Occasionally, I'll bounce an idea off him or ask for his opinion, but that's it. Would you believe that I can't remember the last time that he called me suggesting that I purchase a stock? As a matter of fact, this is one of the primary reasons that I opened an account for my grandparents with him. The account doesn't include any stocks, but rather some income producing assets that could not be purchased through a deep discount broker. Plus, he's more accessible when they want to call with questions about their account than a discounter would be. I have complete confidence that he'll let me manage the account as I see fit, with minimal interference.
The end result of all this is that the stocks I have in my taxable portfolio with him are among my top performers so far this year. Better yet, I don't see any reason to sell any of them anytime soon -- they're all Cash-King type stocks.
What this has showed me is that having an account with a broker can work provided that you lay down the ground rules and make sure that they are enforced. After all, that's the way it should be; it's your money and ultimately you're the one that should be held accountable for the performance of your investments.
I'll be back tomorrow to review some of the reasons against holding mutual funds. Have a Foolish night.
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Stock Change Bid AXP -3 3/16 97.00 CHV + 1/4 82.44 CSCO - 3/8 79.81 KO --- 68.63 GPS -2 13/16 51.00 EK - 13/16 73.19 XON + 3/16 73.19 GM - 5/16 69.19 INTC +1 1/8 120.06 MSFT -2 3/8 131.19 PFE +1 13/16 116.19 SGP - 7/16 53.94 TROW - 3/8 36.94
Day Month Year History C-K -0.99% 2.93% 25.32% 25.32% S&P: -0.53% 1.53% 17.43% 17.43% NASDAQ: -0.29% 4.37% 22.11% 22.11% Cash-King Stocks Rec'd # Security In At Now Change 2/3/98 24 Microsoft 78.27 131.19 67.61% 5/1/98 55.5 Gap Inc. 34.06 51.00 49.74% 2/13/98 22 Intel 84.67 120.06 41.79% 2/3/98 22 Pfizer 82.30 116.19 41.18% 6/23/98 34 Cisco Syst 58.41 79.81 36.64% 8/21/98 44 Schering-P 47.99 53.94 12.39% 2/6/98 56 T. Rowe Pr 33.67 36.94 9.69% 2/27/98 27 Coca-Cola 69.11 68.63 -0.70% 5/26/98 18 AmExpress 104.07 97.00 -6.79% Foolish Four Stocks Rec'd # Security In At Value Change 3/12/98 20 Eastman Ko 63.15 73.19 15.90% 3/12/98 20 Exxon 64.34 73.19 13.76% 3/12/98 15 Chevron 83.34 82.44 -1.09% 3/12/98 17 General Mo 72.41 69.19 -4.44% Cash-King Stocks Rec'd # Security In At Value Change 2/3/98 24 Microsoft 1878.45 3148.50 $1270.05 5/1/98 55.5 Gap Inc. 1890.33 2830.50 $940.17 2/13/98 22 Intel 1862.83 2641.38 $778.55 2/3/98 22 Pfizer 1810.58 2556.13 $745.55 6/23/98 34 Cisco Syst 1985.95 2713.63 $727.68 8/21/98 44 Schering-P 2111.7 2373.25 $261.55 2/6/98 56 T. Rowe Pr 1885.70 2068.50 $182.80 2/27/98 27 Coca-Cola 1865.89 1852.88 -$13.02 5/26/98 18 AmExpress 1873.20 1746.00 -$127.20 Foolish Four Stocks Rec'd # Security In At Value Change 3/12/98 20 Eastman Ko 1262.95 1463.75 $200.80 3/12/98 20 Exxon 1286.70 1463.75 $177.05 3/12/98 15 Chevron 1250.14 1236.56 -$13.58 3/12/98 17 General Mo 1230.89 1176.19 -$54.70 CASH $120.62 TOTAL $27391.62 *Please note: On 8/4/98 $2,000 cash was added to the
portfolio. $2,000 will be added every six months.
*The year for the S&P and Nasdaq is as of 02/03/98