Introduction
Chapter 10 of the Intelligent Investor: Investor and his Adviser. When it comes to investing your money the right way, there is a market for investment advisers. Most of the investors are amateurs to conduct their own research while investing.
“If the reason people invest is to make money, then in seeking advice they are asking others to tell them how to make money”1.
Chapter 10: The Investor and his Advisers
In this chapter of The Intelligent Investor, the author has emphasis its focus on the relationship between the investor and his adviser.
This chapter has highlighted the different types of advisers and how they approach the investors. Every investor needs to be aware of the kind of adviser to deal with, which depends on the various factors like, type of investor one is, the capital required, the risk appetite of the investor etc.
Different types of advisers as explained in Chapter 10 of the intelligent investor
The following are the different types Investment Advisers as per Chapter 10 of the Intelligent Investor:
- Investment counsel and Trust Services of Bank
- Financial Services
- Brokerage Houses
- Chartered Financial Analyst
- Investment Bankers
- Other Advisers
Let us understand more on these types of advisers in brief detail
Investment Counsel and Trust Service of Bank
These are well established investment advisers that charge an annual fee and are very modest in their promises. They do not commit their investors in extra ordinary returns, but follow standard methods by securing the investment. They invest in large cap companies and high dividend payout company for a meaningful return on investment. Their aim is to only preserve the capital of the investors first, then to generate returns.
A very important line in the book that stayed with me, “The leading investment counsel firms do not claim on being brilliant, they do pride themselves on being careful, conservative and competent“2.
Financial Services
Financial services provide details study, brief notes and bulletins to its investors to make and informed decision for their investors. These notes include, fundamental analysis of various investment securities, forecasting the price movements, and providing a market overview by studying the macro and micro economic factors.
It is to be noted that, the forecast predicted by the financial services may not always hold true, these services are also in the market of hedging the already provided investment tips, incase their view goes wrong.
Brokerage Houses
The author believes that the largest tips and volume of information to novice investors come from brokerage houses. The reason for their high activity is because brokerage houses earn commission / brokerage against every trade an investor executes.
In the book the author has praised about the brokerage houses being most ethical and refrained from anyone into speculations. The other believes this because back in the days, the major chunk of commissions came from investors and traders who constantly traded and made profits. If these investors stopped making profits, the brokerage houses would run out of business.
However in the footnotes of the book it is mentioned that, in the modern times the brokerage houses have enough liars and could go to any extent to lure the investors in making certain trades.
Chartered Financial Analyst
The author recalls an important step that was taken in the year 1963, where the title of “Chartered Financial Analyst” was introduced. This title was awarded to those advisers who passed the CFA Examination. Implementing these prerequisites before anyone called themselves an investment advisor eradicated major crowd of self-claimed “Advisers” and boosted trust among investors with these advisors.
Investment Bankers
“The term Investment Banker is applied to a firm that engages to an important extent in originating, underwriting and selling of new issues of stocks and bonds” 3.
The author believes that investment bankers is the most respectable department of the Wall Street Community, because they are the ones responsible for supplying new capital in the expansion of the industry.
The relationship between the investment banker and investor is that of a salesman and a buyer. These investment bankers, with their decades of experience have helped financial institutions and insurance companies in generating good returns. Thus, novice investors will always pay attention to the advice provided by these investment bankers.
Other Advisers
Despite the presence of wide range of professional advisers, investors are always keen in knowing the opinion of their friend, family and peers. These advises are free tips and are usually a result of herd mentality.
When do you need a Investment Adviser
It is not always certain to select an investment adviser if an investor is not very aggressive with their investment and are more focused on capital conversation and generating sizeable rate of return.
The commentary of this chapter has put forth some signals if you need an investment adviser:
- Big losses: If your portfolio has lost more than 40% of its value
- Busted budgets: If you can’t budget you investment and expenses and always due on payments and not able to make ends meet.
- Lack of diversification: If your portfolio is not properly diversified.
- Life changes: If you need to set up a retirement plan, or you are planing to save funds to met your future goals.
Words of warning
In todays times, where the stock markets are filled with crooks and lairs, who can go to any extent to lure the investors in providing wrong advise for personal gain, here are some word of cautions that should you need to be aware of:
- The opportunity of a lifetime
- Guaranteed return
- We can beat the market
- Don’t you want to be rich?
- Fixed monthly returns
- No one knows how to do this
Conclusion
Investors who are willing to pay a fee for management of their firm needs to wisely select a well established investment counsel.
Therefore, while selecting an adviser in managing your investment, one needs to spend some time in screwing these investment counsel.
The following points can help you better understand the adviser you are dealing with:
- Determine if the adviser is keen on helping its clients
- Establish if the advisers understand the fundamental principles of investing
- Ensure the advisers are sufficiently educated and experienced.
Final tip: If you have less that Rs. 10 lakhs to invest, opting for an investment adviser may not be the appropriate way to manage your fund. Simply invest the money in a mutual fund or an index fund and your portfolio will eventually grow.
Also Read: Why Warren Buffett Love Chapter 8 And 20 Of The Intelligent Investor
