Classic Retail Broker Stupidity

A retail broker I worked with many years ago sends an email asking about Freddie Mac (FRE):

"It looks cheap, the government won’t let them go bust, its a potential turnaround."

Mind you, this guy has been on the wrong side of every disaster known to Wall Street: Bear Stearns (BSC), Fannie FNM), AIG, Lehman (LEH), Ambak (ABK).

He is a phenomenal salesman, but just the worlds worst stock picker. As bad as the worst of the investing public. Loves Mad Money, worships Cramer, but has managed to learn nothing in 20 years on the street.

Its not the specific stock picking, but the methodology  that is so suspect — no stop losses, a lack of any planning, TV driven — worst than random dart throwing.

If he just raised money and let a professional manage it, he’s have billions under management and be wildly successful.

The imagination reels. We should set up a Contra fund and fade all of his choices.


UPDATE: July 10, 2008 1:30pm

Note: I was referencing one specific guy and not the entire retail world. Truth be told, my experience with Commission brokers has been a lot more incompetence (than criminality–tho that exists), some really talented guys, and a lot of flotsam and jetsam. With fee based, it seems to be reversed — more competence, less excess activity.

The general quality of the advisor community — like everything else — probably fits nicely into a bell curve, with some exceptional advisors, some folks who should be doing something else, and a bunch in the middle. 

As one emailer correctly notes: "Pointing to only one part of that bell curve — or generalizing that "retail" sucks — hardly seems cricket."

Fair enough. Consider this my correction.


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  1. Chief Tomahawk commented on Jul 10

    But probably has a really attractive wife with tons of dough inherited from parents. Hubby only gets a small chunk to invest….

  2. Mr. Obvious commented on Jul 10

    Without people like him, we wouldn’t have contra-trend rallies.

  3. Retrogrouch commented on Jul 10

    Pretty funny. I read this right after finishing this story from Reuters -“Fannie, Freddie Stocks and Bonds Plummet”.

  4. Vermont Trader commented on Jul 10

    Bear markets have an amazing ability to make everyone look stupid.

    Even the bears.

    They don’t just go down. They move in whatever direction will cause the most pain.

    We could easily have a 10% up day or a 10% down day at this point. We could have a day with both.

    Anyone who pretends to know which way the market will go tomorrow has not yet been humbled by the bear.

    Any trade you make is like stepping on to a busy railroad line. Watch out for that train!

  5. Steve Barry commented on Jul 10

    I hope he doesn’t read this!!

    It’s like when my friend calls me and says “Citi is cheap at 29…going to buy” and I say what makes it cheap? becasue your gut says the price seems low? Do you know how to value it on cashflow? Do you know what’s on the balance sheet? Well look at it now.

    Since I posted this here last Thursday, all hell has broken loose with Freddie and Fannie…I am timely:
    I hate to be the bearer of bad tidings on a holiday…but just checking out some charts to kill time while watching a ballgame…we are soon going to see the bankruptcy of at least a couple of homebuilders and some pretty large banks. Furthermore nobody has even mentioned Freddie and Fannie lately…Freddie down almost 9% today to new lows. They both could be headed for bailouts.

  6. UrbanDigs commented on Jul 10

    ehh, the guy is bottom fishing for a trade. I bought FRE 2 days ago at 11.50, and quickly sold it at 12.50 for a point profit. Never intended on holding, only for a trade. I did have stop orders in at 11 and 12.50 though. So thankfully my sell order got executed first.

    The stupidity comes out thinking that govt wont let them go bust. Sure, if they are nationalized, but then the stocks go to 0! So on this thesis he is way off.

    Unless I am the retard and wrong there.

  7. pjfny commented on Jul 10

    the government won’t let them(fnm and fre) disappear, but if they are in-solvent (see poole’s comment), the equity holders will be wiped out….the guys does not understand the basics of the mkt!!!

  8. leftback commented on Jul 10

    the concept of dilution eludes a lot of people….

    rally caps still on. irrational business….

  9. John F. commented on Jul 10

    I thought these guys were headed the way of the dinosaurs. Is there still time to short the retail brokerage industry?

  10. J. Bridges commented on Jul 10

    Yeah, guys like your retail broker friend are why I’m able to pay my wife’s huge grad school tuition bills: I need people like him to take the other side of my trades. What is sad is this: He takes so many of his clients along for the inevitable ride and flushes their equity down the toilet.

    For the other traders out there today, be very careful. Unless you’re scalping the odd-index, I would trim positions and possibly get a little flat. The Whipsaw scale is at 11 today.

  11. Bruce in Tennessee commented on Jul 10


    This is what bothers me about some of the things you see on TV, too. Most of these guys cannot take their broker hat off whenever they are on television…they almost never sound like investors..they sound like brokers.

    Take Cramer for instance. Perhaps he really does want to make money for his viewers. But, in a bear market we all look stupid. Finding the next thing to buy in a bear market, when to get in, when to get out, is very very hard work, and making a wrong call or two can wipe out all the profit it has taken months to accumulate. You go from your friend Eddie Lambert and Sears, and Google….to oils and coal…now he is recommending long positions in only a few biotechs…Sheesh….if you aren’t careful, you’ve been crushed in this market by him…

    And it is not just Jim…the Joe Battipaglias, Don Luskins, many many others just have trouble predicting what to do…and if they change their mind, it is usually much too late and the damage is done.

    Since I don’t like shorts, I have found that just selling stocks…buying short term cds or treasuries, and riding the downturn out…then reinvesting in long positions is easy, and lets you sleep at night…as one of the guys in Minyanville says…It is lost opportunity, maybe, but not lost capital…

    Just wait until you are sure it is over, then get bullish again…worked for me for 30 years…

  12. Mike in NoLA commented on Jul 10


    Nothing wrong with your strategy. Whatever you’re comfortable with.

    My question is: How can the DJ be up 70 when these bozo’s are on TV. No real answers to anything. Lots of BS from Paulson. Lot’s of deer-in-the-headlights from BB.

    Oh, this is encouraging. BB: “We have plenty of balance sheet left.” Plenty more to lend to Jamie and Pandit.

  13. Bill commented on Jul 10

    As a retail broker/adviser/what-have-you, I can understand how easy it is to see these prices decline and think that makes the companies cheap. It’s so easy to be mesmerized by that, and the chatter from others in your office. Fortunately I come here for a palate cleanser on a regular basis.

  14. JMH commented on Jul 10

    Retail brokers are not money managers, their objective is to transfer your wealth to the firm they work for, and take a cut for themselves. Brokers are strictly sales oriented. If the client makes money, that’s nice, it keeps them around. But their objective is sales, and pushing whatever product gives them the greatest commission.

    I have found retail brokers have very minimal understanding as to how markets work, and almost never have an idea about trading plans. If they were really good at making money, they would not be cold calling for clients, or calling their existing clients with “Take a look at ___” (Recently a broker called me suggesting I “Take a look at AIG”, it’s cheap.) It became a lot cheaper, as we all know. I’m not suggesting that brokers are bad people, but asking a broker for financial advice is like asking a car salesman how to drive a large truck. There are exceptions, I met one broker who actually knew what he was doing. I have met many more who where recommending C at $29.

  15. Agoracom commented on Jul 10

    Reminds me of my football picks. All of my buddies ask to make some picks on Friday and then bet the other way.

    It works for them and thank-god I don’t gamble!

    Barry, keep posting your buddy’s picks. If it worked for my friends, it may work for all of us here.

  16. Bill commented on Jul 10

    Generally, the brokers who cold call with “take a look at…” are a dying breed, but cold calling as a marketing practice is still very much alive and viable, especially for someone without a lot of contacts at the start.
    That being said, very few brokers are transactionally oriented, the entire model has moved to a fee based practice and clients are very demanding of both competence and results when they see that quarterly charge on their bill. Overall, the change seems to have been good for hte industry.

  17. rpb commented on Jul 10

    ha, i remember one swiss bank broker, not to be named, who had me give out investment advice as intern to clients looking to make large moves. some of these guys just dont give a sh*t and are salesman. good call barry. but everyone knows that, right?

  18. Db commented on Jul 10

    After graduating from a small, private, decent university I became a retail financial advisor for a very recognizable company that is always at/near top of rankings, league tables for other things e.g. m&a, trading, derivatives, prime brokerage. Alas, though I was a “Financial Advisor.” I came to understand the advisors in the retail world who stay in such a position are only there because they are salesman and that is it! Not all but most seem to not have a clue about how markets work, rather are barely capable of regurgitating sentence fragments from the firm’s morning call. A good example: I was 23 at the time and the latest push at the time was managed futures. A more senior advisor (8-10yrs but only 32-34 age) PLAINLY stated to me and another more senior advisor(and much smarter)that the risk involved in managed futures were no different and no more than that of investing in stocks or mutual funds. My immediate verbal response to him was “you are an absolute moron!” That is just an example of the stupidity flowing freely through many a branch offices.

    One thing I learned is that most of the people I spoke to and had conversation with as potential clients could not understand or see that the “real” job of the advisor was niether to advise nor to make that person money. It was simply to gather assets, sell that clients something that brought the “juice”, hopefully not see the client’s account dwindle in value, BUT if it did the advisor is expected to be very good at conjuring up some excuse. One last note: in the training program of this large firm, I sat before a sales/training manager whose 2 big pieces of advice were 1. “You have to be a mile wide and (only) an inch deep.” 2. “You only need to know more than the client and sound like you know what you’re talking about.” Needless to say I no longer work there and chose the wrong path to Wall Street

  19. Pouca commented on Jul 10

    Barry, I think you got it just about right with your additional comments. Many of the highest paid wirehouse brokers are stupid rather than criminal, most of the ones in the middle of the curve know all of the patter and just hope the market goes up, and there are a few of us (at least I hope I can count myself in that group) who know what risk is and really, really hate losing money for their clients.

    I have read the Big Picture for a long time and I find it and a number of other blogs–thanks for the links–to be the best sources of financial information available. Thank God for the internet.

    I have never posted before but I had to write in today because I just had a similar experience–a broker with 20+ years in the business walked around the office a few days ago with a recommendation to buy FNM–for the dividend, no less. Imagine, 20 years in the business and he still doesn’t know not to catch a falling knife, or he doesn’t care.

    Anyway, the coincidence was uncanny and I thought you might find it interesting. Thanks again for all the work that you do.

  20. ben commented on Jul 10


    While you are at it do two more posts and throw economists and analysts in there with the brokers who mostly don’t have a clue.

    In general they make similar dumb calls all the time. Nobody has that almanac from Back to the Future II to make all the right calls. If this guy really was on all the others you mention that’s just wierd that he still has a job.

    I do appreciate the fact you recognize that a fee based approach is better and mainly because of the lower activity. I’m a CFP that does real financial planning and have a CFA in house that manages money for clients in fee based accounts, we don’t use loaded mf’s and prefer ETF’s and stocks to control costs for clients. this is especially important in a low return environment. I openly admit mostly all of our clients are down for the year between 3-6% some higher and some lower depending on risk profile but we don’t “trade” the accounts, we diversify based on strategic and tactical allocation that is based on risk, time horizon and an economic and sector thesis and rebalance as necessary based on these and other factors, it works over time and I also understand it is not for everyone. Working with a broker to us does seem like throwing darts though I also agree there are some all star brokers out there.

    I do consider myself a professional however it is hard to justify because “planners” have no national level of standards to give the advice, unlike say, a CPA. Since this is the case anyone can hold themselves out to the public with bs titles they give people that sit at a desk at Wachovia like “financial specialist” or the non-licensed person who does “free planning” because they aren’t licensed, use a generic calculator and sell indexed annuities. The general public still doesn’t think planning is something necessary but this will change as the investment climate becomes more complex, the social programs continue to break down and pensions become completely extinct, and people live longer. CPA became a more recognized profession after the great depression and the requirement that books be checked for public companies. Perhaps financial planning will be more recognized after the baby boomer generation retires unprepared.

    Steve Barry,

    I think you write a lot of good stuff on here and I enjoy reading your posts but c’mon man, don’t pat yourself on the back too much for the Fannie and Freddie call, anyone could have made that one. I’m not a Cramer fan but he was talking about that in 07.

  21. Dr. Waterbury commented on Jul 11

    I had a good friend buy Enron all the way down at the advice of his “bullish on America” retail broker’s advice—he lost $250,000. Oops.

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